Well, be careful, for acquisition accounting is one of the more/most complex issues facing accountants in today's GAAP world. You may be opening Pandora's box...
While I don't like the term, "P&L Reserve," for I don't know what that really means, the answer to your question(s) is yes. You need to present all assets and liabilities at fair market value as of the acquisition date,
prior to any consolidation/elimination J/Es. Look at it as of an audit was taking place on that date and you needed to present the acquiree's balance sheet correctly.
Just a few thoughts to consider (if you are interested, of course):
I presume this is a 100% acquisition, yes? In other words, there is no noncontrolling/minority interest, correct?
I'll skip all the jargon in ASC 805 about the definition of a business, as let's presume a business was actually acquired. I'm also assuming that the acquiror and acquiree are easily identified here (ASC 810). Correct?
One of the most challenging steps in acquisition accounting is the identification of INTANGIBLE assets (patents, customer lists, etc., governed by ASC 350) that are recognized in the acquiree's G/L that otherwise wouldn't be if they were internally developed. Ultimately, this will REDUCE Goodwill. Goodwill is nothing more than a mathematical/mechanical squeeze on the acquiree's balance sheet after all tangible and intangible assets & liabilities are correctly recorded in the acquiree's G/L. Well, if you add an asset (Debit) to the acquiree's balance sheet, that will reduce Goodwill. Appendix A of ASC 805-20-55 contains a listing of intangible assets that the FASB believes have characteristics that meet one of the two criteria for assets that should be recognized separately from Goodwill. Note that an, "assembled workforce" is NOT an intangible asset that should be considered.
Are there any contingent payments to employees or former owners of the acquiree (earnout)? This is sometimes a significant challenge to deal with.
Any Research & Development assets/costs to consider?
Just a few thoughts to consider.