How to Record M&A Inventory Step-Up Expensing
Accounting for the amortization of the fair value step-up of medical device inventory following a business combination.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Cost of Goods Sold | dr | 250,000.00 | - |
| Finished Goods - Fair Value Step-up | cr | - | 250,000.00 |
💡 Accountant's Note
In an acquisition, inventory is recorded at fair value, often higher than historical cost. As this inventory is sold, the incremental step-up amount must be expensed to COGS to reflect the fair value at the date of acquisition.
Practitioner & Systems Framework
💻 ERP Architecture
Requires a sub-ledger or separate inventory valuation layer to track step-up amounts distinctly from standard costs.
⚠️ Audit Flags
Significant gross margin compression in the periods immediately following an acquisition.
📄 Required Documentation
Purchase price allocation (PPA) report and inventory turnover analysis showing the sale of acquired lots.
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