hard · Private Equity accounting-flow
How does the 'Fair Value' adjustment of a target's existing debt affect Goodwill if the debt is assumed (not refinanced) and its market rate is higher than its book rate?
- It is ignored entirely because debt is a financing choice, not part of the operating asset base.
- It increases the reported fair value of the debt liability, which mechanically increases the Goodwill plug.
- It reduces the fair value of the debt liability, which increases net assets and decreases Goodwill.
- Debt is always recorded at its original face value in the PPA, regardless of current market interest rates.
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