In an M&A model, which item is a typical balance sheet adjustment related to the target's assets?

In an M&A model, which item is a typical balance sheet adjustment related to the target's assets?

• A. Revenue adjustments
• B. Goodwill
• C. Marketable securities
• D. Deferred tax liabilities

Answer: (B)

In an M&A model, after you acquire the target you allocate the total purchase price to the fair values of identifiable assets and liabilities. Any amount that remains after valuing those net identifiable assets is recorded as goodwill. This goodwill is an asset on the acquirer’s balance sheet and represents the premium paid for items like synergies, brand, or other intangibles that aren’t separately identifiable. It’s exactly the typical balance sheet adjustment tied to the target’s assets in a purchase price allocation. Revenue adjustments are income statement items, not balance sheet entries, so they aren’t the adjustment this question is about. Marketable securities could be assets on the balance sheet but aren’t the standard residual adjustment created by the purchase price. Deferred tax liabilities arise from adjusting asset values to fair value and reflect tax consequences; they’re a related but separate item, not the primary balance sheet adjustment representing the asset-side premium.

In an M&A model, after you acquire the target you allocate the total purchase price to the fair values of identifiable assets and liabilities. Any amount that remains after valuing those net identifiable assets is recorded as goodwill. This goodwill is an asset on the acquirer’s balance sheet and represents the premium paid for items like synergies, brand, or other intangibles that aren’t separately identifiable. It’s exactly the typical balance sheet adjustment tied to the target’s assets in a purchase price allocation.

Revenue adjustments are income statement items, not balance sheet entries, so they aren’t the adjustment this question is about. Marketable securities could be assets on the balance sheet but aren’t the standard residual adjustment created by the purchase price. Deferred tax liabilities arise from adjusting asset values to fair value and reflect tax consequences; they’re a related but separate item, not the primary balance sheet adjustment representing the asset-side premium.