Purchase Acquisition

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Purchase Acquisition

In accounting, a way of recording a merger or acquisition in which the acquiring company treats the target company like an asset such as equipment or stock. That is, in a purchase acquisition, the acquiring company simply adds the fair market value of the target company's assets to its balance sheet. If the acquisition cost more than the fair market value, the excess is recorded as goodwill. Purchase acquisition is less common than pooling-of-interests, because goodwill is recorded against future earnings, reducing the company's profit.
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16 says entities that engage in purchase acquisitions may include certain associated costs in the acquisition price, thereby capitalizing the costs rather than deducting them from income as an expense in the current period.