USA Company acquiring all of the stock of another company

[DEW]

Hi

I work for a small business that has a single owner. In an effort to grow the business, the owner has identified a target company to acquire. The owner wants to cut a check from the company he currently owns for all of the shares of the target company. If you are buying all of the shares of the target company, aren't you essentially buying all of the assets and liabilities of the company with any difference between price and asset and liability values going to goodwill?

The owner is telling me we won't acquire any of the assets of the company so in my mind, we are essentially buying their book of business.

Any help is appreciated.

Thank you

 

[DrStrangeLove]

Buying all the shares is buying a controlling interest in the target company triggers consolidation of the target's books with your books. That's not the same as buying all the target's assets and liabilities. If you just bought the assets and liabilities outright, you couldn't recognize goodwill on the acquisition, and you'd have to capitalize the direct acquisition costs into the value of the assets you acquired.

 

[DEW]

Turns out that through the stock purchase, we are buying all of the assets and liabilities of the company. I believe I have to assign FMV to each asset and the difference between the purchase price and the asset values goes to goodwill correct? Thank you

 

[DrStrangeLove]

Goodwill is the difference between the purchase price and the FMV of your net assets (assets less liabilities) at consolidation. And only when you consolidate your books. You don't bring the subsidiary's assets and liabilities into the parent's books as an operating business. Consolidation happens in a separate non-ledger worksheet each reporting period.