Consolidating journal entries

The consideration transferred in a business acquisition usually comprises assets transferred, liabilities incurred (including contingencies), and the amount of equity that acquiree has issued to acquirer.

ASC 805 defines goodwill as the excess of the fair value of consideration effectively transferred over the net amount of the fair value of the identifiable net assets over net liabilities.

One such exception is for acquisition-related liabilities, which are recorded if and only if they are liabilities of that respected entities.

Furthermore, ASC 805 requires that the acquirer recognize all preacquisition contingencies at fair value.

Additional provisions of the new pushdown accounting guidance include the following: shows the impact of pushdown accounting on the financial statements of an acquiree.

Three resulting scenarios can occur: fair value of consideration transferred (FVCT) equals (fair value of identifiable assets received [FVAR] less fair value of identifiable liabilities assumed [FVLA]); FVCT is greater than (FVAR less FVLA); or FVCT is less than (FVAR less FVLA).

ES has assets with a book value of 0 million and liabilities with a book value of .

Topic 805 requires that in business combinations an “acquirer” should establish a new basis of accounting in its books for assets acquired and liabilities assumed when it obtains control of a business.

Afterward, the acquiree adopts the newly established acquirer’s basis for reporting its own assets and liabilities in its stand-alone financial statement presentations.

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