In a combined balance sheet, under what circumstances should the seller's historical equity account be eliminated?

In the context of a combined balance sheet resulting from a merger or acquisition, the elimination of the seller's historical equity account is appropriate during all Mergers and Acquisitions transactions. This is because when one company acquires another, the acquiring entity must present a consolidated picture of the financial situation which reflects the merger or acquisition as if it were a single entity.

By eliminating the seller's historical equity account, the combined financial statements avoid double counting the equity that appears as part of both the acquiring and the target company's balance sheets. This process aligns the reported financial position with the economic reality of the transaction, ensuring that the shareholders and stakeholders of the acquirer receive an accurate presentation of the company’s combined assets, liabilities, and equity.

Each merger or acquisition necessitates this elimination to prevent inflated equity reporting, thereby complying with accounting principles such as those observed in GAAP (Generally Accepted Accounting Principles) or IFRS (International Financial Reporting Standards). The focus on creating a true financial picture is essential for accurate reporting and analysis, making this elimination fundamental in M&A transactions regardless of the specific characteristics of the entities involved or the public/private nature of the firms.