DEFINITION of 'Purchase Acquisition'

An accounting method used in mergers and acquisitions with which the purchasing company treats the target firm as an investment, adding the target's assets to its own fair market value.

BREAKING DOWN 'Purchase Acquisition'

If the amount paid for a company is greater than fair market value, the difference is reflected as goodwill. Because goodwill must be written-off against future earnings, this makes the pooling-of-interests method preferable.

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RELATED FAQS
  1. Is goodwill considered a form of capital asset?

    Learn more about capital assets of a business, and understand why goodwill is an intangible asset that is classified as a ... Read Answer >>
  2. How does goodwill increase a company's value?

    Learn about the basics of goodwill in the business world, what positive effects it can have on a company's overall value ... Read Answer >>
  3. 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 >>
  4. When and why does goodwill impairment occur?

    Understand what the goodwill of an asset is and how it's created. Learn how the goodwill of an asset can be impaired and ... Read Answer >>
  5. What's the difference between a merger and an acquisition?

    Learn about the difference between mergers and acquisitions. Discover what factors may encourage a company to merge or acquire ... Read Answer >>
  6. How is a goodwill impairment recorded on a company's financial statements?

    Learn about goodwill, how it's created and how it becomes impaired. Understand how goodwill impairment is recorded on a company's ... Read Answer >>
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