An accounting method for the acquirer in a business combination (acquisition) whereby it records the consideration paid for the acquired/ acquiree. The acquisition method involves multiple steps: 1) identification of the acquirer 2) fixing the acquisition date, i.e., the date on which the acquirer gets control of the acquired 3) recognition and measurement of the identifiable assets acquired, the liabilities transferred to/ assumed by the acquirer and any non-controlling interest (NCI) (formerly known as minority interest) in the acquired firm and 4) separate recognition and measurement of intangibles (e.g., goodwill) or any bargaining gains.

For example, goodwill is calculated as the consideration transferred plus non-controlling interests and fair value of previous equity interests minus net assets recognized. If the amount of net assets exceeds the combined amount of consideration, non-controlling interests and fair value of previous equity interests, then the acquirer obtains a bargaining gain.

The acquisition method considers the deal as a whole rather than just its parts combined. In this sense, the method requires the full disclosure of all contingencies (i.e., assets and liabilities that are more likely than not to be recognized in the future). In other words, potential lawsuits, product warranties or financial obligations that could materially impact the ability of the entity to continue in the future must be reported at “fair value” on the date of acquisition.