Acquisition Accounting

What is 'Acquisition Accounting'

Acquisition accounting is a set of formal guidelines describing how assets, liabilities, noncontrolling interest and goodwill of a target company must be reported by a purchasing company on its Consolidated Statement of Financial Position. With acquisition accounting the fair market value of the acquired firm is allocated between the net tangible and intangible assets portion of the balance sheet of the acquiring firm; any difference is regarded as goodwill. Also called "business combination accounting."

BREAKING DOWN 'Acquisition Accounting'

International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS) require all business combinations to be treated as acquisitions for accounting purposes, meaning that one company must be identified as an acquirer and one company must be identified as an acquiree even if the transaction creates a new company. In the past, a method called "purchase accounting" was used in business combination accounting, but standard changes made acquisition accounting the only acceptable method.

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RELATED FAQS
  1. What is the difference between goodwill and tangible assets?

    Find out about tangible and intangible assets, and understand how intangible assets, such as goodwill, do not take physical ... Read Answer >>
  2. What are the primary goodwill accounting rules to be aware of?

    Learn the basics of how goodwill is acquired and tested for impairment, as well as the FASB rule change allowing for the ... Read Answer >>
  3. What happens to the stock prices of two companies involved in an acquisition?

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