Acquisition Method vs Purchase Method: Difference and Comparison

The acquisition technique is accompanied by general sets of accounting followed into impact, whereas the purchase technique evolved subsequently and is used widely in mergers and acquisitions.

The acquisition method is based on industry, whereas the purchasing method is more adjustable in pricing and buying.

Key Takeaways

1. The acquisition method records the acquired company’s assets and liabilities at fair value, whereas the purchase method records them at their carrying value.
2. Under the acquisition method, goodwill is calculated as the difference between the acquisition price and the fair value of the acquired net assets. Under the purchase method, goodwill is calculated as the difference between the acquisition price and the carrying value of the acquired net assets.
3. The acquisition method replaced the purchase method in 2009 and is now the standard accounting practice for business combinations.

Acquisition method vs Purchase method

The difference between the acquisition method and the purchase method is that while buying a corporation in the acquisition method, the acquiring party is the firm that dominates the financial flow strategies of the other firm. On the other hand, in the purchase method, during a buy transaction, a reasonable market value is tagged by the investor related to a particular property to the financial status.

The method that was subsequently evolved with the aim of its application in mergers and acquisitions is known as the acquisition method.

The usual equation set for accounting followed its impact as an acquisition technique. Combination and acquisition accounting is categorized under the two accounting methods in this technique.

The purchase method involves the evaluation of resources by investors based on their current value in the market.

This technique focuses on the firm that is undergoing purchase rather than the obligations and assets of the purchasing party.

With the combination of stakes, the purchase method fell into the accountancy background affiliated with a junk jar.

Comparison Table

Parameters for comparison	Acquisition method	Purchase method
technique	In the mechanism of acquisition technique, the general set associated with accounting was followed into effect .	The technique associated with purchase method 2 was subsequently evolved and is vastly applied in mergers and acquisitions.
Identification mode	The approach related to the context of the acquisition method is based on industry.	The purchasing technique is affiliated with a better flexible mechanism for buying and pricing.
Consideration	In the technique of acquisition method, during an ongoing purchase, the entire company is considered. The elements are not simply considered during purchase.	In the purchase technique, the pay structure involves the rightful incorporation of the acquired financial assets while using the pay structure.
Approach	The financial reporting methods of acquisition technique can be categorized into two branches. One is the acquisition financing and the other is the merger accountancy.	The expenses associated with the purchase are permitted to have a consistent approach of accounting, in the buy method associated with purchase method 2.
Value	The acquisition technique or mechanism comprises the accounting of each company. The accounting is established at a full fair value.	The purchasing technique involves the elevation of fair market value for the ongoing purchase.

What is the Acquisition method?

The regular expression of accounting eventually went into full effect as an acquisition technique. The acquisition technique was developed subsequently and is used in mergers and acquisitions.

The approach seems to have two accounting procedures: acquisition accounting and combination accounting. The purchase must be appraised at market value.

Furthermore, credit must be acknowledged as the difference between the acquisition price and the revaluation model.
The acquisition method reports the financial activities at the whole market price. Non-controlling stakes and uncertainties are also included in the acquisition method.

The purchasing technique is thought to produce a rather more accurate depiction of capital resources, leading to economic reports that are more clear and more relevant. Sales, expansions, and other types of “contracts” are all covered under modern acquisition accounting.

Every combination is an acquisition in the accounting world. You must first determine which firm is the acquiring party to properly record your merger accounting journal entries.

It’s evident when one corporation buys another, but it’s not always the case.

The acquiring party seems to be the firm that has control over another firm’s cash flow strategies.

The larger corporation is frequently the acquirer, although this isn’t always the case.

When buying a corporation in the acquisition method, the acquiring party dominates the other firm’s financial flow strategies.

What is Purchase Method?

Investors evaluate resources at their current market value when using the purchase method. Users have been doing the same thing with the obligations that they take when they purchase a business.

The purchase valuation method is concerned solely with the firm being purchased, not with the purchasing party’s assets and obligations.

The amortization of assets, which used to be a source of contention for several corporations, was removed by FASB.

In 2007, the purchase technique entered the junk jar accountancy background with the combining of stakes. The method of acquisition had risen to the top of the heap.

A method of registering a purchase in which the purchasing business views the company in question as an entity like shares.

The investor merely adds the reasonable market value of a specific property to its financial statements in a buy transaction. The surplus is recognized as assets if the transaction costs more than just the market valuation.

Since assets are reported versus future revenue, diminishing the company’s cash flow, purchase acquisitions are less frequent than collecting acquisitions.

Main Difference Between Acquisition Method and Purchase Method

1. In the mechanism of acquisition technique, the general set associated with accounting was followed into effect, unlike Purchase method 2, which subsequently evolved and is vastly applied in mergers and acquisitions.
2. The approach related to the context of the acquisition method is based on industry. Thus, unlike purchase method 2, it has not an industry-driven approach.
3. In the technique of acquisition method, the entire company is considered during an ongoing purchase. The elements are not simply considered during purchase, whereas in the purchase technique, the pay structure involves the rightful incorporation of the acquired financial assets while using the pay structure.
4. The financial reporting methods of acquisition technique can be categorized into two branches. One is the acquisition financing, and the other is the merger accountancy, where the expenses associated with the purchase are permitted to have a consistent approach of accounting in the buy method associated with purchase method 2.
5. The acquisition technique or mechanism comprises each company’s accounting is established at a full fair value. Unlike the acquisition method, the purchase technique involves the elevation of fair market value for the ongoing purchase.

References

1. https://www.sciencedirect.com/science/article/abs/pii/S0950584913000839
2. https://meridian.allenpress.com/accounting-review/article-abstract/75/3/257/53014/Purchase-Pooling-and-Equity-Analysts-Valuation

Last Updated : 13 July, 2023