Acquisition accounting is a formula or a method of showing the financial position of a company a purchasing company on the consolidated statement of the company. The term acquisition accounting is reserved for the process of purchase where one company is purchasing the other company. The company that is going to purchase the other company is called purchasing company and the company that is being purchased is called a target company. In order to make this purchase process completely transparent and fair the purchasing company has to identify and report all the assets, liabilities, goodwill, interests, taxes and other financial details of the company on consolidated statement of the financial status. This process of reporting all these details is called acquisition accounting.
The other name given to acquisition accounting is the business combination accounting. With the help of business combination accounting the market value of the intangible and tangible assets of the acquired company are reported on the balance sheet of the company that is acquiring the other company. All the financial institutions require acquisition accounting as proof of fair dealing where a company is acquiring any other company. In the process of acquiring one company is called acquirer and the other company is called acquiree. Before acquisition accounting a process called purchase accounting was used for this purpose however due to the financial standards set by different financial institutions the only method used in acquisition purposes now called acquisition accounting.
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