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Module V· Purchase Accounting & Goodwill — BasicsBasic
Question

What is purchase accounting in an acquisition?

Answer
Purchase accounting

The accounting applied when an acquirer obtains control of a business.

Core steps
  1. Identify the acquirer.
  2. Determine purchase consideration.
  3. Measure identifiable assets and liabilities at fair value.
  4. Recognize deferred taxes on fair-value step-ups where applicable.
  5. Recognize goodwill or bargain purchase gain.
Why it matters

Purchase accounting affects goodwill, amortization, depreciation, deferred taxes, future EBIT, and impairment risk.

IB relevance

PPA can change post-deal EPS, leverage, ROIC, and the buyer's reported earnings profile.

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