GAAP Purchase Method, IFRS Purchase Method, and GAAP Acquisition Method Accounting
The table below summarizes some differences between GAAP Purchase Method, IFRS Purchase Method, and GAAP Acquisition Method accounting.
| Item | PURCHASE METHOD: GAAP | PURCHASE METHOD: IFRS | ACQUISITION METHOD: GAAP |
|---|---|---|---|
| Purchase Price | Cash Paid + fair value of other considerations + direct costs | Same as GAAP Purchase Method. | Cash Paid + fair value of other considerations. |
| Fair Value of Subsidiary | When parent acquires less than 100%, the amount of fair value over book value is recognized in proportion to the parent's ownership. | Consolidated balance sheet recognizes the full amount of the fair value in excess of the acquired company's book value (note this difference from GAAP). | Same as IFRS Purchase Method. |
| Subsidiary Contingent Liabilities | Recognized on the sale date at fair value. | Same as GAAP Purchase Method. | Same as GAAP Purchase Method. |
| Subsidiary In-Process R&D | Recognized on the sale date at fair value, as part of the subsidiary's net assets, then expensed. | Recognized on the sale date at fair value as part of the subsidiary's net assets; reported on the consolidated balance sheet as an intangible asset. | Same as IFRS Purchase Method. |
| Minority Interest | Based on subsidiary's book value of net assets owned by minority shareholders. |
Appears between debt and equity on the consolidated balance sheet. | Either:
1) Subsidiary's fair value of net assets owned by minority shareholders, which creates partial goodwill.
2) Subsidiary's full fair value, applied to percent ownership by minority shareholders, which creates full goodwill.Appears under equity section on the consolidated balance sheet. | Subsidiary's full fair value, applied to percent ownership by minority shareholders, which creates full goodwill.
Appears under equity section on the consolidated balance sheet. |
NOTE: This table helps to highlight how the Acquisition Method in the US is more aligned with the IFRS Purchase Method.
- CFA Level 2: Financial Reporting Part 2 – Introduction
- Intercorporate Investments Accounting - Ownership Categories
- Minority Passive Investments – Accounting Classes
- Minority Active Investments and the Equity Method for Financial Reporting
- Joint Venture Investments
- Controlling Interest Investments: Accounting for Business Combinations
- Purchase Method of Accounting for Controlling Interest Investments or Acquisitions
- Pooling of Interests Method to Account for Controlling Interest Investments
- Purchase Method vs. Pooling of Interest Method
- Acquisition Method to Account for Controlling Interest Investments
- GAAP Purchase Method, IFRS Purchase Method, and GAAP Acquisition Method Accounting
- Variable Interest Entities (VIEs) and Special Purpose Entities (SPEs)
- Defined Benefits Plans vs. Defined Contribution Plans
- Measuring the Defined Benefit Obligation
- Pension Expense (both GAAP & IFRS) for the Income Statement
- Defined Benefit Plans & the Company Balance Sheet
- The Role of Actuarial Assumptions in DB Plan Accounting
- Economic Pension Expense
- Pensions and the Statement of Cash Flows
- Accounting for Stock (or Share) Based Compensation
- Financial Statement Consolidation of Multinational Operations
- Consolidation: Presentation Currency vs. Functional Currency vs. Local Currency
- Foreign Currency Translation
- Temporal Method for Translation of Foreign Statements
- Current Rate Method for Translation of Foreign Statements
- Consolidating Financial Statements: Determining the Functional Currency
- Translation Methods and Financial Statement Effects
- Accounting for Subsidiaries in Hyperinflationary Economies
- CFA Level 2: Financial Reporting 2 - Recommendations
- MBS Weighted Average Life