ACQUISITION ACCOUNTING Meaning and
Definition
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Acquisition accounting refers to the process of accounting for a company's acquisition of another company or business. It involves the recognition, measurement, and recording of the assets, liabilities, and equity of the acquired entity, as well as any goodwill or bargain purchase gain resulting from the transaction.
In acquisition accounting, the acquiring company must identify the fair value of the acquired company's assets and liabilities at the time of the acquisition. This fair value assessment is crucial for determining the purchase price allocation and recognizing any changes in the acquired entity's value. The acquisition accounting process also involves consolidating the financial statements of the acquiring company and the acquired company to reflect the combined results of the transaction.
The primary purpose of acquisition accounting is to provide a clear and accurate representation of the financial position and performance of the combined entity. It enables stakeholders to evaluate the impact of the acquisition on the acquiring company's financial statements and assess the potential risks and benefits associated with the transaction.
Acquisition accounting follows specific accounting principles and standards, such as the Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS), depending on the jurisdiction and reporting requirements. It is typically performed by professional accountants or financial experts with expertise in mergers and acquisitions and requires careful analysis and documentation to ensure compliance with relevant regulations and transparency in financial reporting.
Etymology of ACQUISITION ACCOUNTING
The word "acquisition" has Latin origins, derived from the Latin word "acquisitio" which means "gaining, obtaining, acquiring". It is derived from the verb "acquirere", which combines "ad" (meaning "to") and "quaerere" (meaning "to seek, obtain, or gain").
The word "accounting" comes from the Old French word "acompt", which means "counting, calculation". It is derived from the Latin word "computus", meaning "reckoning, computation".
When we combine these two words, "acquisition accounting" refers to the accounting process of recording and valuing assets and liabilities acquired in a business acquisition or merger transaction.
