The Acquisition Method
Business Combination Accounting
Business combinations under U.S. GAAP use the acquisition method. The acquiring company measures identifiable assets acquired and liabilities assumed at their acquisition-date fair values. Any excess consideration over the fair value of net identifiable assets is recognized as goodwill.
- Identify the acquirer.
- Determine the acquisition date.
- Measure consideration transferred.
- Recognize identifiable assets and liabilities at fair value.
- Calculate goodwill or bargain purchase gain.
Note
Acquisition-related legal and professional fees are generally expensed as incurred.
Summary
The acquisition method ensures that acquired businesses are recorded based on fair values at the acquisition date.