What typically happens when a buyer acquires a seller for a price greater than the seller's historical equity?

When a buyer acquires a seller for a price greater than the seller's historical equity, this situation typically results in accounting asset write-ups. The excess amount paid over the historical equity reflects a premium that the buyer is willing to pay, which often recognizes the intangible assets or synergies that the buyer expects to gain from the acquisition.

In accounting terms, when the transaction price exceeds the net book value of the seller's equity, the excess is allocated to the identifiable intangible assets and any goodwill that might arise from the acquisition. Goodwill represents future economic benefits arising from other assets that are not individually identified and separately recognized. This accounting treatment helps the buyer reflect the value of the acquired company's brand, customer relationships, or market position on their balance sheet.

Understanding this concept is important in M&A because it underscores how acquisitions can lead to significant changes in financial reporting and helps negotiate the deal structure. The other options do not accurately describe the consequences of an acquisition at a price above historical equity, as they suggest outcomes that are not standard or expected in such transactions.