When a large corporation purchases a new business which is included in the consolidated statements for the year, it is not a change in a reporting entity, and it is accounted for prospectively.

Question

Quizplus · Accepted Answer

When a large corporation purchases a new business, it is considered a business combination, which is accounted for using the purchase method. Under the purchase method, the acquiring company recognizes the acquired company's assets and liabilities at their fair values as of the acquisition date. The difference between the purchase price and the fair value of the acquired company's net assets is recognized as goodwill. Goodwill is amortized over a period not to exceed 10 years.

When a Large Corporation Purchases a New Business Which Is