Acquisition method of accounting can be described as a set of formal guidelines on how the assets, liabilities and non-controlling interests will be recorded in the financial statements of a target company. Essentially there are two forms of accounting – acquisition accounting and merger accounting. According to this method, all proceeds will be recorded at the fair market value, which is simply the current worth of an asset. Any gains will be accounted as goodwill in the targeted company’s balance sheet.
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This method is an extension of the acquisition method, where all losses or gains must be recorded immediately after a purchase has been accounted for. A company cannot extend or restructure any losses to any another accounting period. This method has now been made mandatory in all EU countries, along with US, in order to prevent any abuse of provisions. A company therefore, will disregard any impact of goodwill.
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