The Push-Down Accounting Controversy [2]

According to one definition of push-down accounting, the basis for an acquired entity's assets, liabilities, and stockholders' equity should be derived from the purchase transaction. The carrying value of the stock to the investor is ''pushed down'' and is judged to be...

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Bibliographic Details
Published in:Strategic finance (Montvale, N.J.) N.J.), 1987-01, Vol.68 (7), p.39
Main Authors: Holley, Charles L, Spede, Edward C, Chester, Michael C
Format: Magazinearticle
Language:English
Subjects:
Accounting procedures
Accounting standards
Balance sheets
Historical cost accounting
Leveraged buyouts
Ownership
Proposed
Staff accounting bulletins
Stock
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Summary:According to one definition of push-down accounting, the basis for an acquired entity's assets, liabilities, and stockholders' equity should be derived from the purchase transaction. The carrying value of the stock to the investor is ''pushed down'' and is judged to be the new basis for the net assets. The central issue is whether there are specific circumstances when the method should be required, permitted, or prohibited. Supporters of push-down accounting believe the most relevant basis for measurement is the price paid for new assets, while opponents of the method contend that the historical cost basis of accounting is violated. Guidance can be found in: 1. Implementation Issue 13 of the Financial Accounting Standards Board's 1976 Discussion Memorandum, 2. Staff Accounting Bulletin 54 from the Securities & Exchange Commission, 3. the Federal Home Loan Bank Board's Memorandum R55, and 4. a 1982 change in Internal Revenue Code Section 334. The application of push-down accounting is illustrated by some hypothetical examples.
ISSN:1524-833X