Consolidation Day 0 — Fair-Value Allocations at Acquisition (T0)

On the acquisition date, the parent must consolidate the acquiree’s assets and liabilities at fair value and allocate any resulting goodwill or gain from a bargain purchase.

This process requires a detailed purchase price allocation (PPA), recognition of previously unrecorded intangible assets, and initial setup of non-controlling interests if applicable.

1. Acquisition date and initial consolidation

The acquisition date is the moment when the acquirer obtains control of the target entity—typically the closing date of the transaction.

From this point forward, the parent:

• Fully consolidates the target’s assets, liabilities, and operations.

• Recognizes all identifiable assets and liabilities at acquisition-date fair values.

• Establishes goodwill or a bargain-purchase gain as the residual in the transaction.

2. Purchase price allocation (PPA)

The total consideration transferred (including cash, equity, assumed liabilities, and contingent payments) is compared against the fair value of identifiable net assets acquired.

Calculation Component	Description
Consideration transferred	Total paid by acquirer, including contingent terms
+ Non-controlling interest (if any)	Measured at fair value or proportionate share
+ Fair value of previously held interest (step acquisition)	Required under US GAAP and IFRS
– Net identifiable assets acquired	Fair value of acquired assets minus liabilities
= Goodwill or Bargain Purchase Gain	Residual amount

Goodwill is recognized as an intangible asset. If the result is negative, a bargain purchase gain is recognized immediately in profit or loss.

3. Identifying and measuring acquired assets and liabilities

At T 0, the acquirer must recognize:

• All tangible and intangible assets (even if previously unrecorded by acquiree).

• All obligations, including contingent liabilities, environmental provisions, or warranty exposures.

• Deferred tax assets or liabilities arising from fair-value differences.

Common intangible assets recognized include:

Intangible Asset	Measurement Approach
Customer relationships	Multi-period excess earnings method
Trademarks and trade names	Relief-from-royalty method
Technology and know-how	Replacement cost or income approach
Non-compete agreements	Discounted cash flow or cost method
Order backlog	Contractual income method

4. Measuring non-controlling interest (NCI)

Two methods are permitted (US GAAP and IFRS):

NCI Measurement Option	Impact on Goodwill
Fair value of NCI (full goodwill)	Goodwill includes both controlling and non-controlling shares
Proportionate share of net assets (partial goodwill)	Goodwill limited to acquirer's portion

The method must be chosen consistently for each acquisition and disclosed.

5. Example — Consolidation at T 0

Scenario: Purchase price = $160 million

Fair value of net assets acquired = $130 millionFair value of NCI = $20 million

Calculation: $160M (consideration) + $20M (NCI) – $130M = $50M goodwill

Journal entries on acquisition date:

• debit Assets (at fair value) .......................................... 130M

• debit Goodwill ................................................................ 50M

• credit Liabilities assumed ............................................ xxM

• credit Cash or Equity Issued ...................................... 160M

• credit Non-controlling Interest ................................... 20M

Note: Liability and asset amounts itemized in the full PPA schedule.

6. Measurement period adjustments

Companies have up to one year to finalize fair-value measurements and adjust initial entries, known as the measurement period. Changes must:

• Relate to conditions existing at the acquisition date.

• Be recognized retroactively, with comparative figures restated.

• Not result from new events or subsequent facts.

After the measurement period ends, further changes are treated as regular accounting adjustments—not as part of acquisition accounting.

7. Disclosures required at T 0

Disclosure Element	Details Required
Acquisition description	Name, date, percentage acquired, rationale
Consideration transferred	Breakdown of cash, equity, contingent consideration
Assets acquired and liabilities assumed	Fair values by major category
Goodwill or gain recognized	Amount, and explanation of synergies or reasons for gain
NCI measurement method	Whether fair value or proportionate share approach was used
Measurement period updates (if any)	Nature and impact of provisional estimates

8. IFRS vs. US GAAP alignment

Area	US GAAP	IFRS
NCI measurement	Choice: fair value or proportionate share	Same as US GAAP
Bargain purchase gain	Recognized in income	Same
Step acquisition remeasurement	Remeasure prior holding at FV	Same, with gain/loss recognized
Measurement period	1 year	1 year
Pushdown accounting	Optional for SEC registrants	Not explicitly addressed

Key take-aways

• Day 0 consolidation requires allocating the purchase price to fair-value assets and liabilities, with goodwill or gain as a residual.

• Intangible assets must be recognized even if previously unrecorded by the acquiree.

• NCI can be measured at fair value (full goodwill) or as a proportion of net assets (partial goodwill), with consequences for total goodwill recorded.

• Provisional amounts may be adjusted during the measurement period but must relate to conditions existing at the acquisition date.