purchase method

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In the USA, a method of accounting for business combinations in which cash and other assets are distributed or liabilities incurred. The purchase method is used if the criteria are not met for the pooling-of-interests method. With the purchase method, the acquirer records the net assets acquired at the fair value on the market. Any excess of the purchase price over fair market value is recorded as goodwill. The net income of the acquired company is recognized from the date of acquisition.

Subjects: Accounting.

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