When pushdown accounting is elected, an acquired company should record the new basis of accounting established by the acquirer for the individual assets and liabilities of the acquired company.
Goodwill should be calculated and recognized by the acquired company consistent with acquisition accounting. Bargain purchase gains, however, should not be recognized in the income statement of the acquired company applying pushdown accounting. Instead, they should be recognized in additional paid-in capital within equity.
In accordance with ASC 805-50-30-12
, acquisition-related debt should be recognized by the acquired company only if it represent an obligation of the acquired company. As such, contingent consideration or financing obtained in connection with the acquisition would generally not be recognized in the acquired company’s separate financial statements unless the acquired company is the legal obligor.
In contrast to the pushdown of parent company debt, a determination should be made as to whether any joint and several obligations that exist among multiple subsidiaries and/or the parent fall within the scope of ASC 405-40
, Obligations Resulting from Joint and Several Liability Arrangements
. Under this guidance, such obligations should be measured as the sum of (a) the amount the reporting entity agreed with its co-obligors to pay and (b) any additional amount the reporting entity expects to pay on behalf of its co-obligors. The corresponding entries (e.g., cash, an expense, a receivable, equity) will depend on the specific facts and circumstances of the transaction.
Transaction costs should generally be recognized as expense by the acquirer, and not pushed down to the acquired company as they are typically not for the benefit of the acquired company.
Refer to Example BCG 10-2 for an illustration of goodwill recognized by the acquired company when pushdown accounting is elected.
EXAMPLE BCG 10-2
Goodwill recognized by the acquired company – pushdown elected
Parent acquires Target and records $100 of goodwill. Parent expects an existing reporting unit to benefit from the synergies of the acquisition and assigns $20 of goodwill to that reporting unit. Parent assigns all of the identifiable assets acquired and liabilities assumed and remaining goodwill of $80 to a new reporting unit. Parent prepares separate, stand-alone financial statements for Target subsequent to its acquisition.
Assuming pushdown accounting is elected, how much goodwill should be reflected in the post-acquisition separate financial statements of Target?
The separate financial statements of Target should reflect goodwill of $100. This is equal to the goodwill recognized by Parent on the date of acquisition.