Difference between acquisition method and purchase method

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1. Acquisition and purchase methods are two accounting methods used in accounting for mergers and acquisitions. These two accounting processes are almost identical in everything and share similar principle. The however display some identifiable points of contrast.

2. Acquisition method presents itself in two accounting methods namely merger accounting and acquisition accounting. The acquisition method is usually focused in recognition of the business combinations on basis of market value whereas the acquisition method is more inclined to purchase price allocation.

3. In the acquisition accounting method, the financial statement line items are presented at the fair value on the balance sheet while in the purchase method, they are presented at the net fair value of the acquiree and the excess is treated as goodwill without special regard to the particular financial statement line item.

4. In the purchase method, the acquirer assigns and realizes all assets and liabilities at their acquisition cost. According to this method, the values of the assets and liabilities are tied to the acquisition costs unlike in the acquisition method where they are recognized at their prevailing fair values.

5. In presenting the financials of the merger, the acquisition method includes the contingencies and non-controlling interests which are excluded in the purchase method.

6. Direct costs incurred in the combination process are captured and reported as costs for the acquired company in the purchase method while in the acquisition method such costs are expensed by the acquiring company in the year of combination.

7. In the purchase method, the earnings of the acquired company are only included to those of the acquiring firm from the date of acquisition whereas the acquisition method advocates for the inclusion of these earnings for the full year of combination.

8. Depreciation or amortization for excess of book over market values is present in the purchase method but absent in the acquisition method since no excess costs exist above the book values.

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