This lesson will translate the language surrounding purchase accounting into instructions that cover the balance sheet adjustments for most control transactions. Please see the notes for more detail on purchase price allocation and purchase accounting.

The video associated with this lesson breaks the process down in detail, and then demonstrates how to make each of the adjustments listed below:

1. Eliminate OldCo Equity Accounts
2. Eliminate OldCo Debt Balances
3. Add NewCo Equity Accounts
4. Add NewCo Debt Balances
5. Expense Transaction Expenses
6. Adjust for Financing Fees* (see note at bottom of post)
7. Add Goodwill Calculation

Note: In some transactions there will be an additional amount of capital raised to “pad the balance sheet” with cash. In this transaction we are assuming that the undrawn revolver will be sufficient.

The notes will not address each of these adjustments in detail because it is easier to visualize with video. Per the screenshot provided below, each step is introduced in the order listed above with the bulleted list available as a reference guide.

Once all of the adjustments have been made, it is important to recognize that the balance sheet titled “Post” in the image above is not yet part of the historical period. The video concludes by demonstrating how the historical balance sheet was moved to the left-most column in the image below and then updated for both Pre-Transaction and Transaction adjustments. As a final step, the video demonstrates how to link the updated balance sheet back to the model.