Explanation

Purchase accounting is the method of reporting assets and liabilities in the books of the acquiring company where the acquiring company is assumed to have purchased the target company. If assets are purchased at the net asset value, then the consolidated balance sheet will be similar to combining the statements of two companies. If the assets are purchased at a price more than the net asset value, then the appraised value of assets are added to the acquiring company's statements. However, if they are purchased below the net asset value, then they are written down to the purchase price in the financial statements of the acquiring company.

Verified Answer

Purchase accounting is the method of reporting assets and liabilities in the books of the acquiring company. In this method, the acquiring company is assumed to have purchased the target company, and all the assets and liabilities are recorded in a manner similar to a purchase.