Push Down Accounting

Pushdown Accounting: Definition, How It Works, and Example

Key takeaways

• Pushdown accounting records an acquired company’s assets and liabilities at the purchaser’s acquisition cost rather than the target’s historical cost.
• The purchase price becomes the acquired company’s new book value; any resulting gains, losses, or goodwill are reflected on the acquired entity’s financials.
• Under U.S. GAAP pushdown accounting is optional; it is not permitted under IFRS. Since 2014 the former ownership-percentage threshold was removed, so companies may elect it regardless of stake size.

What is pushdown accounting?

Pushdown accounting is a method for preparing the financial statements of an acquired company using the acquirer’s accounting basis. The acquired company’s balance sheet is adjusted (written up or down) to reflect the purchase price. If the purchase price exceeds the target’s fair value of net assets, the excess is recognized as goodwill on the target’s books. Acquisition-related gains and losses are “pushed down” and presented in the acquired company’s financial statements rather than being shown only at the parent level.

How it works

• The total consideration paid by the acquirer becomes the acquired company’s new book value.
• Assets and liabilities are remeasured to reflect the purchase price (or fair value), replacing historical carrying amounts.
• Any excess of purchase price over fair value of identifiable net assets is recorded as goodwill on the acquired company’s books.
• Debt incurred to finance the acquisition can be reflected on the acquired company’s balance sheet, and related interest expense can be recorded on the acquired company’s income statement.
• Acquisition costs and transaction expenses are reported on the target’s separate financial statements under pushdown accounting.

Example

Company ABC acquires Company XYZ:
* XYZ has historical net assets valued at $9 million.
* ABC pays $12 million to acquire XYZ (a $3 million premium).
* ABC finances the deal by issuing $8 million in ABC shares to XYZ shareholders and borrowing $4 million in cash.
Under pushdown accounting:
* XYZ’s balance sheet is restated so its net assets equal $12 million.
* The $4 million debt used to finance the purchase is shown on XYZ’s liabilities.
* Goodwill of $3 million (the $12 million purchase price minus $9 million fair value of net assets) is recorded on XYZ’s books.
* Interest expense on the $4 million may be recorded on XYZ’s income statement.

Regulatory and practical considerations

• U.S. GAAP: Pushdown accounting is optional for acquirers to apply; a previous ownership threshold (e.g., 95%) was removed in 2014, so the option exists regardless of ownership percentage.
• IFRS: Pushdown accounting is generally not permitted under International Financial Reporting Standards.
• The SEC updated related guidance for public companies to align with the FASB position, allowing the option under U.S. rules.

Advantages and disadvantages

Advantages
* Provides clearer visibility into the acquired entity’s post-acquisition financial position and profitability by reflecting acquisition-effected balances on the subsidiary’s books.
* Can make it easier to evaluate the standalone performance of the subsidiary and assess acquisition-related return metrics.

Disadvantages
* May complicate consolidated analysis if the same adjustments are mirrored across entities.
* Tax, regulatory, and reporting impacts vary by jurisdiction and transaction structure; outcomes can be advantageous or disadvantageous depending on details.
* Recording acquisition debt and expenses on the target’s books may affect the subsidiary’s covenant compliance and perceived creditworthiness.

When companies use it

Pushdown accounting is often elected when stakeholders want the subsidiary’s financial statements to reflect the economic terms of the acquisition—for example, to present post-acquisition net assets, goodwill, and financing where the legal subsidiary appears as if it were acquired using that financing. The decision to elect pushdown accounting should consider reporting objectives, tax implications, debt covenants, and applicable accounting standards.