Microsoft Purchase of LinkedIn : Accounting Changes After Acquisitions

This case illustrates that when one company acquires another, the acquirer includes the revenues of the acquiree beginning on the date the acquisition closes. The accounting treatment is prospective, rather than retrospective; meaning that the acquirer does not adjust previous years as if the acquired company had always been a part of the acquirer. Only in the footnotes is it required to disclose two years of pro-forma retrospective revenues and earnings as if the acquisition occurred at the beginning of the previous year. We study Microsoft’s purchase of LinkedIn in December 2016. We analyze Microsoft’s footnotes and calculate its standalone organic revenue growth versus growth from the LinkedIn acquisition. We also research Accounting Standards Codification (ASC) 250 “Accounting Changes and Error Corrections” and ASC 805 “Business Combinations” and learn that a “change in reporting entity” is not the same as an acquisition