what is push-down accounting? course hero

Pushdown accounting is a method of accounting for the purchase of another company at the purchase price rather than its historical cost. The target company’s assets and liabilities are written up (or down) to reflect the purchase price.

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What is push down accounting?

Pushdown accounting refers to the latter, which means establishing a new basis for the assets and liabilities of the acquired company based on a “push down” of the acquirer’s stepped-up basis. Pushdown accounting is optional under ASC 805-50-25-4.

What are the requirements for pushdown accounting?

Pushdown Accounting Requirements Pushdown accounting was formerly mandatory when the parent acquired at least 95% ownership of another company. If the stake ranged between 80% to 95%, pushdown accounting was an option. If the stake was smaller, it was not permitted.

What is pushdown accounting under ASC 805?

Pushdown accounting is optional under ASC 805-50-25-4. Pushdown accounting typically results in higher net assets for the acquired company on the acquisition date because the assets and liabilities are “stepped-up” to fair value and goodwill is recognized.

What happens if a subsidiary does not apply pushdown accounting?

Even when a subsidiary does not elect to apply pushdown accounting in its separate financial statements, its net assets may be subject to “push down” of the parent’s historical cost if those assets are subsequently transferred to another subsidiary under the parent’s control (i.e., in a common control transaction).

What is pushed down accounting?

Key Takeaways. Pushdown accounting is a method of accounting for the purchase of another company at the purchase price rather than its historical cost. The target company's assets and liabilities are written up (or down) to reflect the purchase price.

How does the acquiree elect pushdown accounting?

An acquiree can elect to use pushdown accounting in its separate financial statements upon the occurrence of an event in which the acquirer obtains control of the acquired entity.

What is pushdown accounting quizlet?

What is push-down accounting? a. A requirement that a subsidiary must use the same accounting principles as a parent. company.

Is pushdown accounting allowed under IFRS?

Push-down accounting is not permitted under IFRS, and therefore the US company may have to maintain two sets of IFRS numbers: one for the parent consolidation and one for its stand-alone financial statements.

Why is push down accounting used?

Pushdown accounting typically results in higher net assets for the acquired company on the acquisition date because the assets and liabilities are “stepped-up” to fair value and goodwill is recognized. This in turn usually results in lower net income in periods subsequent to the acquisition due to higher amortization, higher depreciation, and potential impairment charges. Refer to Figure BCG 10-1 for an illustration of the impact of pushdown accounting on an acquired company’s financial statements.

Why do companies use pushdown accounting?

Some acquirers may prefer to apply pushdown accounting at the acquired company level to avoid separate tracking of assets, such as goodwill and fixed assets , at two different values (historical and “stepped-up basis”). Conversely, an acquired company may prefer to carry over its historical basis even when its acquirer is applying acquisition accounting. Companies may also want to consider tax reporting implications and may prefer to carry over their historical basis for financial reporting purposes when carry over basis is being used for tax reporting purposes (that is, when there is no tax “step-up”).

What is change in control in accounting?

For purposes of pushdown accounting, a change-in-control event is one in which an acquirer obtains control of a company. An acquirer might obtain control of a company in a variety of ways, including by transferring cash or other assets, by incurring liabilities, by issuing equity interests, or a combination thereof. In some cases, an acquirer might obtain control of a company without transferring consideration, such as when certain rights in a contract lapse. The guidance on consolidations in ASC 810 and business combinations in ASC 805 should be used to determine whether an acquirer has obtained control of a company. Refer to BCG 1 for additional guidance on determining whether an acquirer has obtained control.

How are business combinations recorded?

Business combinations are recorded using the acquisition method . The acquirer recognizes the assets acquired and liabilities assumed at fair value with limited exceptions. If the acquired business prepares separate financial statements, a question arises as to whether the historical basis of the acquired company or the “stepped-up basis” of the acquirer should be reflected in those separate financial statements. Pushdown accounting refers to the latter, which means establishing a new basis for the assets and liabilities of the acquired company based on a “push down” of the acquirer’s stepped-up basis. Pushdown accounting is optional under ASC 805-50-25-4.

What is a pushdown election?

The pushdown election is optional for an acquired company’s separate financial statements but not for an acquirer’s consolidated financial statements since the acquirer must apply acquisition accounting. Accordingly, the first step is to identify the acquirer in any change-in-control event. The acquirer is the entity or individual that obtains control of the acquiree in a business combination. The guidance on consolidations in ASC 810 and business combinations in ASC 805 should be followed to identify the acquirer. However, the acquirer is not always clearly evident; for example, the legal acquirer may not be the same as the accounting acquirer (e.g., in a reverse acquisition).

When pushdown accounting is elected, an acquired company should record the new basis of accounting established by the acquirer for the?

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.

Is a new entity considered an accounting acquirer?

The determination of the accounting acquirer also may not be clearly evident when a new entity (NewCo) is created to effect a transaction. The determination of whether a NewCo is the accounting acquirer is judgmental and requires an understanding of the substance and legal form of the transaction. If the NewCo is the acquirer, acquisition accounting (rather than pushdown accounting) would be applied in the NewCo’s financial statements. Refer to BCG 2.3 for further guidance on identifying the accounting acquirer, and BCG 2.3.1 for guidance on when a NewCo is created to facilitate the business combination.

What Is Pushdown Accounting?

Pushdown accounting is a bookkeeping method used by companies to record the purchase of another company. The acquirer’s accounting basis is used to prepare the financial statements of the purchased entity. In the process, the assets and liabilities of the target company are updated to reflect the purchase cost rather than the historical cost.

When a company buys another company, must the accountant record the transaction in detail?

When a company buys another company, accountants must record the transaction in detail, including the value of the assets and liabilities of the company that have been purchased. In pushdown accounting, the target company’s assets and liabilities are written up (or down) to reflect the purchase price.

What happens to the gains and losses associated with the new book value?

Any gains and losses associated with the new book value are “pushed down” from the acquirer’s to the acquired company’s income statement and balance sheet.

Why is keeping debt on books important?

From a managerial perspective, keeping the debt on the subsidiary's books helps in judging the profitability of the acquisition.

Is GAAP accounting accepted by IFRS?

This method of accounting is an option under U.S. Generally Accepted Accounting Principles (GAAP) but is not accepted under the International Financial Reporting Standards (IFRS) accounting standards. 1 

Does the SEC require push down accounting?

The Securities and Exchange Commission (SEC) changed its own rules to match the FASB guidance, meaning public companies as well as private companies have the option, but not the requirement, to use pushdown accounting regardless of the ownership stake of the company purchased. 5 .