What is Pushdown Accounting?

Pushdown accounting is a technique used by an acquirer to record the purchase of another entity. Under this elective approach, the accountant uses the acquiring entity's basis of accounting to prepare the financial statements of the acquired entity. This means that the assets and liabilities of the acquiree are updated to their fair values as of the acquisition date. Thus, the recorded book value of each acquired asset and liability is its fair value as of the acquisition date.

If the purchase price exceeds the fair value of the acquired assets and liabilities, the excess is recorded as goodwill. These changes appear in the financial statements of the newly-acquired entity. Once this option is applied, the change is irrevocable.

Reasons to Use Pushdown Accounting

There are several reasons why an acquiree might choose to use pushdown accounting. For example, it might use this approach to alter the asset and liability values of some business operations that it wants to spin off. Or, doing so might allow it to more easily adhere to the terms of existing debt covenants. This approach might also allow it to reduce or defer its tax burden. In short, the reasons to use pushdown accounting depend on the specific circumstances of the acquiree in question.