Last reviewed: July 2026.
This guide explains the journal entries for purchasing a business, including cash, shares, liabilities assumed, deferred consideration, contingent consideration and goodwill. The legal form of the transaction determines whether the purchasing company records business assets directly or records an investment in a subsidiary.
Before posting entries, confirm whether the transaction is a business combination or an asset acquisition. Read the broader IFRS 3 business-purchase and goodwill guide for classification, measurement and bargain-purchase analysis.
Business-purchase journal-entry framework
For a direct acquisition of a business, the simplified entry structure is:
- Debit: each identifiable asset acquired at the required amount;
- Debit: goodwill, when the business-combination calculation produces goodwill;
- Credit: each liability assumed;
- Credit: cash, equity, deferred consideration or contingent consideration, depending on the terms.
Do not use this entry mechanically. First complete the business-versus-asset assessment, acquisition-date measurement and purchase-price allocation.
Consideration paid in cash
When cash is paid immediately, credit cash for the acquisition-date consideration. The debit side records the acquired assets and goodwill, while liabilities assumed are credited separately.
A simple cash-settlement line is:
Debit business purchase / investment or acquired net assets
Credit cash
The exact debit depends on whether the legal transaction is a direct purchase of business assets or a purchase of shares in a subsidiary.
Consideration paid by issuing shares
When the purchaser issues its own shares, recognise the consideration using the applicable acquisition-date measurement and allocate the equity amount between share capital and share premium or another contributed-equity account under the legal terms.
Illustrative equity settlement:
Debit business purchase / investment
Credit share capital
Credit share premium or other contributed equity
Do not use nominal value alone as the acquisition consideration when the applicable measurement requires a different amount. See the share capital accounting guide.
Deferred consideration
Deferred cash consideration is payable after the acquisition date. When the time value of money is material, record the acquisition-date amount at present value and recognise the financing element after acquisition.
Illustrative acquisition-date entry:
Debit business purchase / investment
Credit deferred consideration liability at present value
Subsequent finance cost increases the liability over time until the payment date.
Contingent consideration
Contingent consideration depends on future events such as revenue, profit or regulatory targets. Recognise it at acquisition-date fair value and classify it as equity, an asset or a liability according to its terms.
- Liability-classified consideration: later remeasurement may affect profit or loss.
- Equity-classified consideration: it is generally not remeasured in the same way.
- Service-linked payments: amounts linked to continuing employment may be remuneration rather than consideration.
Worked business-purchase journal entry
A company pays 900,000 CU cash for a qualifying business. Identifiable assets have a fair value of 1,200,000 CU and liabilities assumed are 420,000 CU.
- Net identifiable assets: 1,200,000 − 420,000 = 780,000 CU
- Goodwill: 900,000 − 780,000 = 120,000 CU
| Account | Debit (CU) | Credit (CU) |
|---|---|---|
| Identifiable assets acquired | 1,200,000 | — |
| Goodwill | 120,000 | — |
| Liabilities assumed | — | 420,000 |
| Cash | — | 900,000 |
| Total | 1,320,000 | 1,320,000 |
In practice, the assets and liabilities are posted to their individual account classes and related tax effects are considered.
Entries in separate and consolidated accounts
Direct purchase of business assets
The purchasing company records the individual assets acquired, liabilities assumed and any recognised goodwill directly in its own ledger.
Purchase of shares in a subsidiary
The parent’s separate financial statements normally record an investment in the subsidiary:
Debit investment in subsidiary
Credit cash / shares / consideration payable
In the consolidated financial statements, the parent’s investment is eliminated against the subsidiary’s acquisition-date equity. The consolidated process recognises the acquired net assets, goodwill and any non-controlling interest. See the group accounts and consolidation guide.
Purchase consideration account method
Traditional bookkeeping exercises may use a business purchase or purchase consideration account as a temporary recording mechanism. The account can collect acquired assets and liabilities and then be settled by cash or shares.
This method is useful for teaching the double entry, but it does not replace the IFRS 3 analysis of whether the acquired set is a business, the measurement of consideration, the recognition of identifiable net assets and the calculation of goodwill.
Acquisition-related costs and share-issue costs
- Legal, advisory and due-diligence costs for a business combination are generally expensed.
- Incremental costs directly attributable to an equity issue are accounted for in equity under the relevant requirements.
- Debt issue costs follow the applicable financial-instrument accounting.
- Do not automatically add professional fees to goodwill.
Post-acquisition entries
After the acquisition, record depreciation, amortisation, impairment, finance costs and later remeasurement under the relevant Standards. Goodwill is not amortised under full IFRS; it is tested for impairment. Liability-classified contingent consideration and deferred-payment finance costs may create later profit-or-loss entries.
Common journal-entry errors
- posting goodwill before completing the purchase-price allocation;
- recognising goodwill in an asset acquisition;
- crediting share capital for the entire share consideration when share premium is required;
- using nominal value instead of the applicable acquisition-date measurement;
- capitalising acquisition advisory fees into goodwill;
- recording consolidated goodwill in the parent’s separate ledger for a share acquisition;
- failing to record liabilities assumed;
- ignoring deferred or contingent consideration;
- treating employee-service payments as purchase consideration without analysis.
Frequently asked questions
What is the basic entry when a company purchases a business?
Debit the identifiable assets and any recognised goodwill, credit the liabilities assumed, and credit the cash, shares, deferred or contingent consideration transferred.
What does the parent record when it buys shares in a subsidiary?
In its separate books, the parent normally debits an investment in the subsidiary and credits the consideration. Goodwill and acquisition-date net assets are dealt with in consolidation.
Are purchase costs included in goodwill?
Acquisition-related professional fees for a business combination are generally expensed. Qualifying debt or equity issue costs follow the relevant financial-instrument requirements.
How is deferred consideration recorded?
Record the acquisition-date amount, using present value when discounting is material, and recognise the later financing component after acquisition.
Related guides and authoritative references
- Purchase of a Business by a Company: IFRS 3 & Goodwill
- Goodwill Accounting under IFRS 3 and IAS 36
- Share Capital Accounting: Equity, Entries and Presentation
- IFRS Foundation: IFRS 3 Business Combinations
- IFRS Foundation: IAS 32 Financial Instruments: Presentation
Key takeaway: use the legal form and acquisition analysis to decide where the entries belong. Then record the acquired assets, liabilities, goodwill and consideration in a balanced entry, keeping separate-company postings distinct from consolidation adjustments.
This article is for educational purposes. Actual acquisitions require transaction-specific accounting, legal, valuation and tax analysis.
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