Harness Money

What is acquisition accounting?

Acquisition accounting, also known as purchase accounting, is a method used to record the financial transactions and consolidate the financial statements of an acquiring company and a target company after a business acquisition. It involves allocating the purchase price paid by the acquiring company to the assets and liabilities of the target company based on their fair values at the acquisition date.

Under acquisition accounting, the acquiring company recognizes the fair value of identifiable assets acquired, liabilities assumed, and any non-controlling interest in the target company. Any excess of the purchase price over the fair value of net assets acquired is recorded as goodwill on the acquiring company’s balance sheet.

Acquisition accounting ensures that the financial statements of the acquiring company reflect the true financial position and performance after the acquisition. It provides stakeholders with relevant information about the acquired business and its impact on the acquiring company’s financials.

Acquisition accounting is governed by specific accounting standards and regulations, such as the International Financial Reporting Standards (IFRS) or the Generally Accepted Accounting Principles (GAAP).