How pushdown accounting affects post-acquisition financial statements under IFRS and US GAAP

When a company is acquired, the new parent may elect to “push down” the acquisition accounting—revaluations, goodwill, and new capital structure—into the separate financial statements of the subsidiary. This approach aligns the subsidiary’s standalone books with the consolidated fair value basis, creating consistency in asset values and future depreciation but reducing comparability across periods. US GAAP (ASC 805-50) explicitly allows pushdown on an elective basis, while IFRS does not provide formal guidance but permits similar treatment under specific consolidation or local statutory frameworks.

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Why pushdown accounting exists and when it is used

Pushdown accounting reflects a change in control at the parent level by restating the subsidiary’s assets and liabilities to the same fair values used in consolidation. It is common when:

• A subsidiary is wholly owned or nearly wholly owned by the new parent.

• The parent wishes to align the subsidiary’s standalone records with group reporting values.

• The subsidiary prepares separate financial statements for statutory or financing purposes.

Without pushdown, the subsidiary would continue historical book values, and only the group consolidation would reflect the new fair values. Pushdown accounting simplifies internal reporting but can obscure pre-acquisition comparatives.

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IFRS position on pushdown accounting

IFRS does not contain a direct equivalent to ASC 805-50. IASB withdrew its pushdown project in 2014, leaving practice to local regulators. However:

• IFRS permits applying IFRS 3 (Business Combinations) principles only at the consolidated level.

• Subsidiaries’ separate financial statements under IAS 27 are prepared at cost or under IFRS 9, not at the parent’s fair value basis.

• Voluntary pushdown may occur only if local law or regulators require or permit revaluation of assets and liabilities after a change of control.

Result: under IFRS, pushdown accounting is rare and not automatic; most subsidiaries retain their historical carrying amounts in separate financial statements.

Illustrative outcome:

• Group consolidated PPE = €120 million (after fair value uplift).

• Subsidiary standalone PPE = €90 million (pre-acquisition carrying amount).

• The €30 million uplift exists only in consolidation, not in the subsidiary’s local books.

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US GAAP guidance under ASC 805-50

ASC 805-50-25-4 provides an optional election: when an acquirer obtains control of an acquired entity, the acquired entity may apply pushdown accounting in its separate financial statements.

1. Eligibility

Pushdown may be applied when an acquirer obtains control, defined consistently with ASC 810 (Consolidation)—generally ownership of more than 50% of voting interests or control through other means.

2. Measurement basis

If elected, the subsidiary remeasures:

• All identifiable assets and liabilities to their fair values determined in the parent’s purchase price allocation (PPA).

• Recognizes goodwill or bargain purchase gain identical to the parent’s consolidated accounting.

• Resets equity to reflect the new parent’s cost basis: existing retained earnings are eliminated; paid-in capital mirrors the parent’s investment.

3. Accounting entries (example):

Parent acquires SubCo for $100 million; SubCo’s net assets FV = $85 million.

Pushdown entries in SubCo’s books:

• Dr Identifiable Assets (FV step-up) 15,000,000

• Dr Goodwill 15,000,000

• Cr Liabilities / Deferred Taxes xx

• Cr Common Stock / APIC 100,000,000

If elected later (not at acquisition date), apply retrospectively as a change in accounting principle.

4. Subsequent accounting

After pushdown, SubCo depreciates or amortizes the new fair values, and goodwill is tested for impairment under ASC 350. Future distributions are based on the new equity structure.

5. Disclosure (ASC 805-50-50):

• Election of pushdown accounting and effective date.

• Nature and amount of adjustments to assets, liabilities, and equity.

• Description of goodwill recognized.

• If not elected, disclosure that historical basis continues.

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Comparative framework — IFRS vs US GAAP

Topic	IFRS	US GAAP (ASC 805-50)
Formal standard	None (practice-based, limited)	Explicit guidance allowing election
Eligibility	Only if permitted by law/regulator	Any time control obtained
Measurement	Typically cost basis continues	Fair value basis consistent with parent’s PPA
Goodwill	Recognized only at group level	Recognized in subsidiary books
Equity reset	Usually no reset	Retained earnings eliminated; new paid-in capital
Comparatives	Continue historical	Not restated (treated prospectively)

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Worked example — full pushdown election under US GAAP

Facts:

• Parent acquires SubCo for $500 million.

• FV of SubCo’s identifiable net assets = $420 million.

• Fair value uplift: PPE +$40 million, Intangibles +$20 million.

• Deferred tax effect = ($15 million).

Parent’s goodwill:= 500 − (420 + 45) = $35 million.

Pushdown entries (SubCo books):

• Dr PPE 40,000,000

• Dr Intangibles 20,000,000

• Dr Goodwill 35,000,000

• Cr Deferred Tax Liability 15,000,000

• Cr Common Stock / APIC 80,000,000 (net effect after eliminating prior equity)

SubCo’s balance sheet now mirrors the fair value basis used in consolidation.

Subsequent D&A will increase, and goodwill will be subject to the entity’s own impairment tests.

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What happens when pushdown is not elected

If SubCo does not elect pushdown:

• It continues historical cost accounting.

• Consolidation adjustments appear only in the parent’s consolidated statements.

• Goodwill and revaluations exist only at the group level.

• Internal reporting must reconcile between parent’s PPA and SubCo’s books.

Example: Parent’s goodwill test includes SubCo’s step-up, but SubCo’s standalone FS show no goodwill.

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Impact on financial performance and ratios

• Depreciation & amortization: Increases after pushdown due to FV step-ups, lowering standalone profit.

• Return on assets / equity: Decreases because of higher asset base.

• Debt covenants: May need adjustment if based on historical equity or retained earnings.

• Tax reporting: Deferred tax implications depend on whether tax basis aligns with new accounting values.

• Comparability: Year-to-year trends are broken because pre-acquisition results are not restated.

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Operational considerations

• Document the election formally at the acquisition date (for GAAP filers).

• Coordinate with auditors and tax advisors to ensure consistent PPA alignment.

• Maintain dual ledgers if local GAAP or statutory reporting prohibits pushdown.

• Track deferred taxes created by fair value uplifts.

• Disclose goodwill and PPA reconciliation in subsidiary financials if elected.

Pushdown accounting aligns subsidiary and group values but must be applied with discipline—especially when evaluating profitability, dividend policy, or performance-based covenants post-acquisition.

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