purchase method

Definition

An accounting method specifically related to mergers and acquisitions. Under the purchase method, the acquiring company and its fair value are listed. Any difference between the price paid for an acquisition and the fair value is treated as goodwill. The method prevents a company from creating a provision for the restructuring of the acquisition that will create future losses, since those losses should be treated as part of the cost of the acquisition.

Use purchase method in a sentence

I liked our purchase method and thought everything would be going smoothly in the future with us and our company.

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The purchase method was used for our accounting method to record the transactions in our books with regards to the merger.

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The accountants calculated the purchase method for the acquisition. They wanted to make sure the company was not going to change their books to negatively impact the value.

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