Accounting for an acquisition using market value for the consolidation of the two entities' net assets on the balance sheet. Generally, depreciation/amortization will increase for this method (due to the creation of goodwill) compared to the pooling method resulting in lower net income.
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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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
A method of accounting for a merger or combination in which one firm is considered to have purchased the assets of the other firm. If the price paid for the acquired firm exceeds the market value of the acquired firm's assets, the difference is recorded as goodwill on the acquiring firm's balance sheet. The goodwill must be written off over a period of years. Compare pooling of interests.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.