Lesson 27 - Advanced Accounting Course

Lesson 27: Pushdown Accounting — When and How to Apply It

Pushdown accounting is a special type of accounting used after a business acquisition. It involves adjusting the financial statements of the acquired company to reflect the purchase price paid by the acquirer.

Let’s break it down step by step so it’s super easy to understand.

🤔 What Is Pushdown Accounting?

When one company (the acquirer) buys another company (the acquiree), pushdown accounting allows the acquiree to "push down" the new values (fair values) from the acquisition onto its own books.

This means the acquired company restarts its accounting based on the new owner’s purchase price 📊.

💬 In simple terms: The acquired company updates its balance sheet to match what the new owner paid for its assets and liabilities.

📍 When Is Pushdown Accounting Used?

Pushdown accounting is optional under IFRS but allowed when certain conditions are met.

Under U.S. GAAP (ASC 805-50), it can be applied when:

✅ Change in control: The acquirer gains 100% control over the target
✅ The acquirer has significant influence over how the acquired company operates
✅ The financial statements are prepared separately by the acquiree (standalone)

📆 When to Apply Pushdown Accounting?

🧾 How Pushdown Accounting Works 

🧮 Example of Pushdown Accounting

Scenario:
Company A acquires 100% of Company B for $1,200,000.
Company B’s existing balance sheet shows:

• Net assets = $900,000
  
  

• Retained earnings = $200,000
  
  

🧾 After pushdown accounting:

• Revalue Company B’s assets and liabilities to match the fair value from acquisition
  
  

• Record goodwill of $300,000 ($1,200,000 – $900,000)
  
  

• Reset retained earnings to $0
  
  

• The difference goes into a new equity line called Pushdown Equity
  
  

📊 Updated Equity Section of Company B:

💡 Why Use Pushdown Accounting? 

🔎 Pushdown Accounting vs. Consolidation 

📄 Disclosures (Important!)

If pushdown accounting is applied, the financial statements must clearly disclose:

• 📆 Date of acquisition
  
  

• 💸 Amount of consideration paid
  
  

• 💼 Adjustments made to assets and liabilities
  
  

• 🌟 Amount of goodwill recognized
  
  

• ⚖️ Method used and the reason for applying pushdown accounting
  
  

⚠️ Common Mistakes to Avoid

📑 Quick Recap