when a company buys another company accountants must record the transaction in detail including the value of the assets and liabilities of the company that have been purchased in pushdown accounting the target company s assets and liabilities are written up or down to reflect the purchase price 
according to the u s financial accounting standards board fasb the total amount that is paid to purchase the target becomes the target s new book value on its financial statements any gains and losses associated with the new book value are pushed down from the acquirer s to the acquired company s income statement and balance sheet if the purchase price exceeds fair value the excess is recognized as goodwill which is an intangible asset 2 3 in pushdown accounting the costs incurred to acquire a company appear on the separate financial statements of the target rather than the acquirer it can be helpful to think of pushdown accounting as a new company that is created using borrowed money both the debt and the assets acquired are recorded as part of the new subsidiary example of pushdown accountingsay company abc decides to purchase its rival company xyz which is valued at 9 million abc is purchasing the company for 12 million which translates to a premium to finance its acquisition abc gives xyz s shareholders 8 million worth of abc shares and a 4 million cash payment which it raises through a debt offering even though it is abc that borrows the money the debt is recognized on xyz s balance sheet under the liabilities account in addition the interest paid on the debt is recorded as an expense to the acquired company s balance sheet in this case xyz s net assets that is assets minus liabilities must equal 12 million and goodwill will be recognized as 12 million 9 million 3 million under revised guidance in effect since late 2014 fasb has eliminated the percentage ownership rule this means companies have the option to use pushdown accounting regardless of the size of their ownership stake pushdown accounting requirementspushdown accounting was formerly mandatory when the parent acquired at least 95 ownership of another company if the stake ranged between 80 to 95 pushdown accounting was an option if the stake was smaller it was not permitted this has changed under new guidance in effect since late 2014 fasb has eliminated the percentage ownership rule this means companies have the option to use pushdown accounting regardless of the size of their ownership stake 4 the securities and exchange commission sec changed its own rules to match the fasb guidance meaning public companies as well as private companies have the option but not the requirement to use pushdown accounting regardless of the ownership stake of the company purchased 5 advantages and disadvantages of pushdown accountingfrom a managerial perspective keeping the debt on the subsidiary s books helps in judging the profitability of the acquisition from a tax and reporting perspective the advantages or disadvantages of pushdown accounting will depend on the details of the acquisition as well as the jurisdictions involved 