 firms generally maintain two books, one as the shareholders book and the second as tax books. Now let's see how the accounting treatment of an acquisition deal is done by the acquirer. Acquirer generally uses purchase method to account for assets acquired under the acquisition deal. This purchase method allows an acquirer to report target firms' assets at their fair market value and depreciate them according to their remaining useful life. This method allows the acquirer to create a goodwill which is the access of the purchase price over the fair market value of the acquired assets. Now if the goodwill is accounted for in the books of accounts by the acquirer then yearly assessment is required this goodwill impairment loss and it will be treated accordingly. So far as the reporting of acquired asset is concerned it will be appearing in the books of the new firm at their new values which are the fair market values whereas in the acquired firms books of accounts these assets will be maintaining at their old or existing values. Let's see an example where A acquires B creating a new firm AB if we see on the screen we see that the B's book value on acquisition is 10 million dollars whereas an appraiser has estimated 14 million dollars to the building of the B. This means that the fair value of the B's total assets is equal to 16 million dollars whereas this sum is equal to the 14 million dollars on the fair market value of the building and the existence of 2 million dollars of cash. A makes payment in cash to acquire these 16 million assets at 19 million dollars which means that there is the presence of goodwill to the tune of 3 million dollars and this 3 million dollars is the difference between the acquisition price of 19 million dollars and the fair market value of B's total assets which is equal to 16 million dollars. This board of payment is through the mode of debt so the company A is using debt of 19 million dollars to make a payment in cash to the shareholders of the firm B. Now the total assets of new firm AB is equal to 39 million dollars this is the sum of 20 million dollars of the acquirer is the total assets and 19 million dollars of the fair market value of the company B or we can say that this 19 million dollars is basically the purchase price of the company B. So far as the reporting is concerned now A's assets will be appearing in new firms book as their new value whereas goodwill in the new firms book will be required to test for an impairment loss at each year end.