What is the accounting treatment for indirect costs in an acquisition?

In accounting for indirect costs related to an acquisition, these costs are typically treated as expenses. Indirect costs, such as administrative overhead, general corporate costs, and certain legal fees that aren't directly tied to acquiring the asset or completing a transaction, do not meet the criteria for capitalization as part of the acquisition cost. Instead, they are recognized as expenses in the period incurred, reflecting the nature of these costs as ongoing operational expenditures rather than direct contributions to the acquisition value.

This treatment aligns with the concept that only costs that are directly attributable to bringing an asset to its intended use can be capitalized. Since indirect costs do not directly enhance the value of the acquired asset or the subsidiary, they are properly expensed, thus impacting the income statement rather than the balance sheet.

In contrast, the other potential treatments — capitalizing the costs, deferring them as an asset, or adding them to the purchase price — do not accurately reflect the nature of indirect costs in an acquisition context. These costs lack a direct association with the acquisition, supporting the need to expense them when incurred.