Hedge Fund Glossary

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Purchase Accounting

this is an accounting method used for all business combinations, such as mergers, consolidations and stock acquisitions, initiated after June 30, 2001. Prior to June 30, 2001, there was an alternative method of accounting called “pooling of interests,” which simply added together the Balance Sheet items of the acquiror and the acquired company. Purchase Accounting treats the acquiror as having purchased the assets and assumed the liabilities of the acquired company on the date of the acquisition. The Book Values of the acquired assets and liabilities are reset to their respective fair market values as of the acquisition date, and the difference between the purchase price and the aggregate fair value of the assets acquired is attributed to goodwill.

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