Answer to Question #113426 in Accounting for Omar Elsallamy

Question

While the initial accounting for the two types of acquisition (asset acquisition and stock acquisition) differs significantly, a stock acquisition and an asset acquisition in some cases have the same effect of creating one larger single reporting entity and should produce the same consolidated balance sheet. Explain

Answer 1

Where an asset transaction is favored, a variety of issues must be considered, as the transaction is actually the sum of the sales of each of the individual assets and an assumption of agreed-upon liabilities.

Where the transaction is structured as a stock acquisition, by its very nature, the acquisition results in a transfer of the ownership of the business entity itself, but the entity continues to own the same assets and have the same liabilities.

https://www.investopedia.com/terms/m/mergersandacquisitions.asp

https://corporatefinanceinstitute.com/resources/knowledge/deals/asset-purchase-vs-stock-purchase/