Question

In M&A, what happened in purchase accounting approaches to the Balance Sheet of a Company?

Answer 1

Assets, liabilities and owners’ equity are the three main parts of the balance sheet. These parts form the accounting equation that states that the assets of a business are equal to the sum of its liabilities and owners’ equity. In other words, assets equal liabilities plus owners equity. Liabilities arise in the form of trade payables and debt obligations, while owners’ equity is the capital contributed by owners of the business. In a merger or acquisition, the liabilities of the target firm must be settled and its owners compensated with cash or awarded shares or share options in the combined entity. This could spell doom for the acquiring entity if the target company has many outstanding liabilities or has issued too many shares.