# ASC 740-805: Income Taxes — Business Combinations Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/740/805/) Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-10T01:18:07.776Z to 2026-09-10T01:18:34.477Z Record version: sha256:1a88a3311c8460726aea43b333c0032cdfd8f7784a175263c110835920a55e2a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 740-805: Income Taxes — Business Combinations ### Machine-generated study aids ```json { "summary": "ASC 740-805 (codified as 805-740) gives the income tax rules that apply when an acquirer accounts for a business combination or a not-for-profit acquisition. It requires recognizing deferred tax assets and liabilities (and valuation allowances) at the acquisition date for the differences between the tax bases and the recognized values of assets acquired and liabilities assumed, measured under Subtopic 740-10 with no discounting. It also specifies exceptions (nondeductible goodwill, leveraged leases) and how post-acquisition changes in valuation allowances and acquired tax positions are recognized — through goodwill only within the measurement period, otherwise in income tax expense.", "key_points": [ "An acquirer recognizes a deferred tax asset or liability at the acquisition date for the acquiree's taxable and deductible temporary differences and operating loss/tax credit carryforwards, and assesses the need for a valuation allowance under Subtopic 740-10 (740-805-25-2 through 25-3).", "Exceptions to recognition are the portion of goodwill whose amortization is not tax deductible, leveraged leases (Subtopic 842-50), and the acquired temporary differences in paragraph 740-10-25-3(a) (740-805-25-3, 25-4).", "Deferred taxes acquired are measured under Subtopic 740-10 and discounting is prohibited (740-805-30-1).", "Goodwill is split into two components: the first (lesser of book or tax-deductible goodwill) generates temporary differences and deferred taxes; an excess of tax goodwill over book goodwill generates a deferred tax asset (computed by the simultaneous equations method, 740-805-55-10 through 55-13), while an excess of book goodwill over tax goodwill produces no deferred taxes ever (740-805-25-8 through 25-9).", "A change in the acquired entity's valuation allowance or an acquired tax position is recorded against goodwill only if it occurs within the measurement period and results from new information about acquisition-date facts (with a bargain purchase gain once goodwill is zero); all other changes go to income tax expense or contributed capital (740-805-45-2, 45-4).", "A reduction in the acquirer's own valuation allowance caused by the combination is not part of the acquisition accounting; it is recognized as an income tax benefit or credited to contributed capital (740-805-30-3, 35-2 through 35-3).", "For equity-classified replacement awards that ordinarily yield postcombination tax deductions, a deferred tax asset is recognized on the precombination portion included in consideration transferred; the excess or shortfall of the actual tax deduction versus the fair-value-based measure goes to income tax expense or benefit (740-805-25-10 through 25-11, 45-5)." ], "categories": [ "Income taxes", "Business combinations", "Recognition", "Initial measurement" ], "audience_level": "advanced", "student_note": "Exam favorites are the goodwill two-component rule (book goodwill in excess of tax goodwill never produces deferred taxes) and the post-2007 rule that valuation allowance releases outside the measurement period hit income tax expense, not goodwill. A common misunderstanding is treating any later reversal of an acquired valuation allowance as a goodwill adjustment — that only works within the measurement period and only for acquisition-date facts.", "related_topics": [ "740-10", "805-20", "805-30", "805-10", "350-20", "842-50" ], "key_concepts": [ "deferred tax assets and liabilities", "valuation allowance", "measurement period adjustments", "tax-deductible goodwill", "simultaneous equations method", "acquired tax positions", "replacement awards", "consolidated tax return" ] } ``` Source downloaded (UTC): 2026-09-10T01:18:07.776Z to 2026-09-10T01:18:07.776Z Record version: sha256:6b7b2cf461ca10aa375250c5d820e570b94340aad7b56bb30e406a1009f3814c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 740-805-00: 00 Status [Read section](https://asc.understandingaccounting.org/asc/740/805/#00-status) SEC content: no ##### [740-805-00-1](https://asc.understandingaccounting.org/asc/740/805/#740-805-00-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:07.776Z to 2026-09-10T01:18:07.776Z Record version: sha256:625f9308b1d71cf0a5b84438d7853bbda1aa35ba2c6501a19c8abd8ad52f4c96 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table identifies the changes made to this Subtopic.
ParagraphActionAccounting Standards UpdateDate
AcquireeAmendedAccounting Standards Update No. 2010-0701/28/2010
AcquirerAmendedAccounting Standards Update No. 2025-0305/12/2025
Acquisition by a Not-for-Profit EntityAddedAccounting Standards Update No. 2010-0701/28/2010
BusinessAmendedAccounting Standards Update No. 2017-0101/05/2017
Business CombinationAmendedAccounting Standards Update No. 2010-0701/28/2010
Commencement Date of the Lease (Commencement Date)AddedAccounting Standards Update No. 2016-0202/25/2016
ContractAddedAccounting Standards Update No. 2016-0202/25/2016
Excess Tax BenefitsSupersededAccounting Standards Update No. 2016-0903/30/2016
GoodwillAmendedAccounting Standards Update No. 2023-0508/23/2023
GoodwillAmendedAccounting Standards Update No. 2010-0701/28/2010
LeaseAddedAccounting Standards Update No. 2016-0202/25/2016
LesseeAddedAccounting Standards Update No. 2016-0202/25/2016
LessorAddedAccounting Standards Update No. 2016-0202/25/2016
Leveraged LeaseAddedAccounting Standards Update No. 2016-0202/25/2016
Temporary DifferenceAmendedAccounting Standards Update No. 2016-1610/24/2016
Underlying AssetAddedAccounting Standards Update No. 2016-0202/25/2016
Variable Interest EntitySupersededAccounting Standards Update No. 2025-0305/12/2025
805-740-05-1AmendedAccounting Standards Update No. 2010-0701/28/2010
805-740-05-2AmendedAccounting Standards Update No. 2010-0701/28/2010
805-740-25-4AmendedAccounting Standards Update No. 2016-0202/25/2016
805-740-25-10AmendedAccounting Standards Update No. 2018-0706/20/2018
805-740-25-11AmendedAccounting Standards Update No. 2018-0706/20/2018
805-740-25-12AmendedMaintenance Update 2017-06 (PDF)04/07/2017
805-740-25-13AmendedAccounting Standards Update No. 2018-0907/16/2018
805-740-30-1AmendedAccounting Standards Update No. 2016-0202/25/2016
805-740-45-5AmendedAccounting Standards Update No. 2016-0903/30/2016
805-740-45-6SupersededAccounting Standards Update No. 2016-0903/30/2016
Source downloaded (UTC): 2026-09-10T01:18:10.131Z to 2026-09-10T01:18:10.131Z Record version: sha256:21c4112a3e2f1beffd8bba4dd98bb383fd37a542255ec4e95bee8a3b4ccd714a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 740-805-05: 05 Overview and Background [Read section](https://asc.understandingaccounting.org/asc/740/805/#05-overview-and-background) SEC content: no ##### [740-805-05-1](https://asc.understandingaccounting.org/asc/740/805/#740-805-05-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:10.131Z to 2026-09-10T01:18:10.131Z Record version: sha256:7a21c61d20d40e0daaae1c07b401b4c53d0b2bfb875ad4b4f91c367ae7560f3a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic provides incremental guidance on accounting for [income taxes](https://asc.understandingaccounting.org/glossary/i/#income-taxes "Domestic and foreign federal (national), state, and local (including franchise) taxes based on income.") related to [business combinations](https://asc.understandingaccounting.org/glossary/b/#business-combination "A transaction or other event in which an acquirer obtains control of one or more businesses. Transactions sometimes referred to as true mergers or mergers of equals also are business combinations. See also Acquisition by a Not-for-Profit Entity.") and to [acquisitions by not-for-profit entities](https://asc.understandingaccounting.org/glossary/a/#acquisition-by-a-not-for-profit-entity "A transaction or other event in which a not-for-profit acquirer obtains control of one or more nonprofit activities or businesses and initially recognizes their assets and liabilities in the acquirer's financial statements. When applicable guidance in Topic 805 is applied by a not-for-profit entity, the term business combination has the same meaning as this term has for a for-profit entity. Likewise, a reference to business combinations in guidance that links to Topic 805 has the same meaning as a reference to acquisitions by not-for-profit entities."). This Subtopic requires recognition of [deferred tax liabilities](https://asc.understandingaccounting.org/glossary/d/#deferred-tax-liability "The deferred tax consequences attributable to taxable temporary differences. A deferred tax liability is measured using the applicable enacted tax rate and provisions of the enacted tax law.") and [deferred tax assets](https://asc.understandingaccounting.org/glossary/d/#deferred-tax-asset "The deferred tax consequences attributable to deductible temporary differences and carryforwards. A deferred tax asset is measured using the applicable enacted tax rate and provisions of the enacted tax law. A deferred tax asset is reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.") (and related [valuation allowances](https://asc.understandingaccounting.org/glossary/v/#valuation-allowance "The portion of a deferred tax asset for which it is more likely than not that a tax benefit will not be realized."), if necessary) for the [deferred tax consequences](https://asc.understandingaccounting.org/glossary/d/#deferred-tax-consequences "The future effects on income taxes as measured by the applicable enacted tax rate and provisions of the enacted tax law resulting from temporary differences and carryforwards at the end of the current year.") of differences between the tax bases and the recognized values of assets acquired and liabilities assumed in a business combination or in an acquisition by a not-for-profit entity. ##### [740-805-05-2](https://asc.understandingaccounting.org/asc/740/805/#740-805-05-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:10.131Z to 2026-09-10T01:18:10.131Z Record version: sha256:262eafe07cb1672f329c4bfbac659863db449ae8b2092a646a645bfe86225bb9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The recognition and measurement requirements related to accounting for income taxes in this Subtopic are exceptions to the recognition and measurement principles that are otherwise required for business combinations and acquisitions by not-for-profit entities, as established in Sections 805-20-25 and 805-20-30. Source downloaded (UTC): 2026-09-10T01:18:12.417Z to 2026-09-10T01:18:12.417Z Record version: sha256:6cf720521c5a128f33c58d606814278b0274cae062e3dd271cf49cbd8262e3a0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 740-805-15: 15 Scope and Scope Exceptions [Read section](https://asc.understandingaccounting.org/asc/740/805/#15-scope-and-scope-exceptions) SEC content: no #### Overall Guidance ##### [740-805-15-1](https://asc.understandingaccounting.org/asc/740/805/#740-805-15-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:12.417Z to 2026-09-10T01:18:12.417Z Record version: sha256:43a547abcad350ac3c01d145b9e065564eb0fc36931d853feb6be89d6999a973 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 805-10-15. Source downloaded (UTC): 2026-09-10T01:18:18.032Z to 2026-09-10T01:18:18.032Z Record version: sha256:a4f2327ee309ca5ac6ae17cdc493f40f2d9cab42cbea9d820e183a045afa3bd7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 740-805-25: 25 Recognition [Read section](https://asc.understandingaccounting.org/asc/740/805/#25-recognition) SEC content: no ##### [740-805-25-1](https://asc.understandingaccounting.org/asc/740/805/#740-805-25-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:18.032Z to 2026-09-10T01:18:18.032Z Record version: sha256:e2b84e4249380682298834d816e0a5f3942f1bb9f4da8e0fdc2af4be70084558 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Section provides general guidance on the recognition of deferred tax assets and liabilities in connection with a [business combination](https://asc.understandingaccounting.org/glossary/b/#business-combination "A transaction or other event in which an acquirer obtains control of one or more businesses. Transactions sometimes referred to as true mergers or mergers of equals also are business combinations. See also Acquisition by a Not-for-Profit Entity."). It also addresses certain business-combination-specific matters relating to [goodwill](https://asc.understandingaccounting.org/glossary/g/#goodwill "An asset representing the future economic benefits arising from other assets acquired in a business combination, acquired in an acquisition by a not-for-profit entity, or recognized by a joint venture upon formation that are not individually identified and separately recognized. For ease of reference, this term also includes the immediate charge recognized by not-for-profit entities in accordance with paragraph 958-805-25-29."), replacement awards, and the allocation of consolidated tax expense after an acquisition. ##### [740-805-25-2](https://asc.understandingaccounting.org/asc/740/805/#740-805-25-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:18.032Z to 2026-09-10T01:18:18.032Z Record version: sha256:3333cf322e92f1ae1f13723c94b70920009ec21e6e88ae9d6738dae00d90ecb5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An [acquirer](https://asc.understandingaccounting.org/glossary/a/#acquirer "The entity that obtains control of the acquiree. However, in a business combination in which a variable interest entity (VIE) is acquired, the primary beneficiary of that entity always is the acquirer. (P) December 16, 2026; (N) December 16, 2026805-10-65-5The entity that obtains control of the acquiree.See paragraphs 805-10-25-4805-10-25-5 for guidance on determining the acquirer.") shall recognize a [deferred tax asset](https://asc.understandingaccounting.org/glossary/d/#deferred-tax-asset "The deferred tax consequences attributable to deductible temporary differences and carryforwards. A deferred tax asset is measured using the applicable enacted tax rate and provisions of the enacted tax law. A deferred tax asset is reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.") or [deferred tax liability](https://asc.understandingaccounting.org/glossary/d/#deferred-tax-liability "The deferred tax consequences attributable to taxable temporary differences. A deferred tax liability is measured using the applicable enacted tax rate and provisions of the enacted tax law.") arising from the assets acquired and liabilities assumed in a business combination and shall account for the potential tax effects of [temporary differences](https://asc.understandingaccounting.org/glossary/t/#temporary-difference "A difference between the tax basis of an asset or liability computed pursuant to the requirements in Subtopic 740-10 for tax positions, and its reported amount in the financial statements that will result in taxable or deductible amounts in future years when the reported amount of the asset or liability is recovered or settled, respectively. Paragraph 740-10-25-20 cites examples of temporary differences. Some temporary differences cannot be identified with a particular asset or liability for financial reporting (see paragraphs 740-10-05-10 and 740-10-25-24740-10-25-25), but those temporary differences do meet both of the following conditions: Result from events that have been recognized in the financial statements Will result in taxable or deductible amounts in future years based on provisions of the tax law. Some events recognized in financial statements do not have tax consequences. Certain revenues are exempt from taxation and certain expenses are not deductible. Events that do not have tax consequences do not give rise to temporary differences."), [carryforwards](https://asc.understandingaccounting.org/glossary/c/#carryforwards "Deductions or credits that cannot be utilized on the tax return during a year that may be carried forward to reduce taxable income or taxes payable in a future year. An operating loss carryforward is an excess of tax deductions over gross income in a year; a tax credit carryforward is the amount by which tax credits available for utilization exceed statutory limitations. Different tax jurisdictions have different rules about whether excess deductions or credits may be carried forward and the length of the carryforward period. The terms carryforward, operating loss carryforward, and tax credit carryforward refer to the amounts of those items, if any, reported in the tax return for the current year."), and any income tax uncertainties of an [acquiree](https://asc.understandingaccounting.org/glossary/a/#acquiree "The business or businesses that the acquirer obtains control of in a business combination. This term also includes a nonprofit activity or business that a not-for-profit acquirer obtains control of in an acquisition by a not-for-profit entity.") that exist at the [acquisition date](https://asc.understandingaccounting.org/glossary/a/#acquisition-date "The date on which the acquirer obtains control of the acquiree."), or that arise as a result of the acquisition, in accordance with the guidance in Subtopic 740-10 together with the incremental guidance provided in this Subtopic. ##### [740-805-25-3](https://asc.understandingaccounting.org/asc/740/805/#740-805-25-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:18.032Z to 2026-09-10T01:18:18.032Z Record version: sha256:26505b13969ee87e1fe457502a4d4bd54c6e290f07600d529d89b780bb5f99b0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. As of the acquisition date, a deferred tax liability or asset shall be recognized for an acquired entity's taxable or [deductible temporary differences](https://asc.understandingaccounting.org/glossary/d/#deductible-temporary-difference "Temporary differences that result in deductible amounts in future years when the related asset or liability is recovered or settled, respectively. See Temporary Difference.") or operating loss or tax credit carryforwards except for differences relating to the portion of goodwill for which amortization is not deductible for tax purposes, leveraged leases, and the specific acquired temporary differences identified in paragraph [740-10-25-3(a)](https://asc.understandingaccounting.org/asc/740/10/#740-10-25-3). Taxable or deductible temporary differences arise from differences between the tax bases and the recognized values of assets acquired and liabilities assumed in a business combination. Example 1 (see paragraph [805-740-55-2](https://asc.understandingaccounting.org/asc/740/805/#740-805-55-2)) illustrates this guidance. An acquirer shall assess the need for a [valuation allowance](https://asc.understandingaccounting.org/glossary/v/#valuation-allowance "The portion of a deferred tax asset for which it is more likely than not that a tax benefit will not be realized.") as of the acquisition date for an acquired entity's deferred tax asset in accordance with Subtopic 740-10. ##### [740-805-25-4](https://asc.understandingaccounting.org/asc/740/805/#740-805-25-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:18.032Z to 2026-09-10T01:18:18.032Z Record version: sha256:8e12443e860781191f040ef2deb0a2bf379cba1f0d94bf962146e45de2503be4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Guidance on tax-related matters related to the portion of goodwill for which amortization is not deductible for tax purposes is in paragraphs [805-740-25-8 through 25-9](https://asc.understandingaccounting.org/asc/740/805/#740-805-25-8) ; guidance on accounting for the acquisition of [leveraged leases](https://asc.understandingaccounting.org/glossary/l/#leveraged-lease "From the perspective of a lessor, a lease that was classified as a leveraged lease in accordance with the leases guidance in effect before the effective date and for which the commencement date is before the effective date.") in a business combination is in Subtopic 842-50; and guidance on the specific acquired temporary differences identified in paragraph [740-10-25-3(a)](https://asc.understandingaccounting.org/asc/740/10/#740-10-25-3) is referred to in that paragraph. ##### [740-805-25-5](https://asc.understandingaccounting.org/asc/740/805/#740-805-25-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:18.032Z to 2026-09-10T01:18:18.032Z Record version: sha256:81509c08d80a72a059609fba30e0b1146fbcdb742d37a3fd0fb8cd7601d9280d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The tax bases used in the calculation of deferred tax assets and liabilities as well as amounts due to or receivable from taxing authorities related to prior [tax positions](https://asc.understandingaccounting.org/glossary/t/#tax-position "A position in a previously filed tax return or a position expected to be taken in a future tax return that is reflected in measuring current or deferred income tax assets and liabilities for interim or annual periods. A tax position can result in a permanent reduction of income taxes payable, a deferral of income taxes otherwise currently payable to future years, or a change in the expected realizability of deferred tax assets. The term tax position also encompasses, but is not limited to: A decision not to file a tax return An allocation or a shift of income between jurisdictions The characterization of income or a decision to exclude reporting taxable income in a tax return A decision to classify a transaction, entity, or other position in a tax return as tax exempt An entity's status, including its status as a pass-through entity or a tax-exempt not-for-profit entity.") at the date of a business combination shall be calculated in accordance with Subtopic 740-10. ##### [740-805-25-6](https://asc.understandingaccounting.org/asc/740/805/#740-805-25-6) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:18.032Z to 2026-09-10T01:18:18.032Z Record version: sha256:2f1fe233733cbf41f37182490548375a5d7b510a59b32dee3f2dbacaa9687120 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In a taxable business combination, the consideration paid is assigned to the assets acquired and liabilities assumed for financial reporting and tax purposes. However, the amounts recognized for particular assets and liabilities may differ for financial reporting and tax purposes. As required by paragraph [805-740-25-3](https://asc.understandingaccounting.org/asc/740/805/#740-805-25-3), deferred tax liabilities and assets are recognized for the [deferred tax consequences](https://asc.understandingaccounting.org/glossary/d/#deferred-tax-consequences "The future effects on income taxes as measured by the applicable enacted tax rate and provisions of the enacted tax law resulting from temporary differences and carryforwards at the end of the current year.") of those temporary differences. For example, a portion of the amount of goodwill for financial reporting may be allocated to some other asset for tax purposes, and amortization of that other asset may be deductible for tax purposes. If a valuation allowance is recognized for that deferred tax asset at the acquisition date, recognized benefits for those tax deductions after the acquisition date shall be applied in accordance with paragraph [805-740-45-2](https://asc.understandingaccounting.org/asc/740/805/#740-805-45-2). ##### [740-805-25-7](https://asc.understandingaccounting.org/asc/740/805/#740-805-25-7) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:18.032Z to 2026-09-10T01:18:18.032Z Record version: sha256:94491a920cb6236cce4acd17e33b697bf47e865929779bd27ed724ff8752b3af Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See Examples 1 through 3 (paragraphs [805-740-55-2 through 55-8](https://asc.understandingaccounting.org/asc/740/805/#740-805-55-2) ) for illustrations of the recognition of deferred tax assets and related valuation allowances at the date of a nontaxable business combination. #### Goodwill ##### [740-805-25-8](https://asc.understandingaccounting.org/asc/740/805/#740-805-25-8) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:18.032Z to 2026-09-10T01:18:18.032Z Record version: sha256:6352076ab432af6d0ff5a3a0c65349e15fdc642597bf223adaf1c0e14a8259c9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Guidance on the financial accounting for goodwill is provided in Subtopic 350-20. For tax purposes, amortization of goodwill is deductible in some tax jurisdictions. In those tax jurisdictions, the reported amount of goodwill and the tax basis of goodwill are each separated into two components as of the acquisition date for purposes of deferred tax calculations. The first component of each equals the lesser of goodwill for financial reporting or tax-deductible goodwill. The second component of each equals the remainder of each, that is, the remainder, if any, of goodwill for financial reporting or the remainder, if any, of tax-deductible goodwill. ##### [740-805-25-9](https://asc.understandingaccounting.org/asc/740/805/#740-805-25-9) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:18.032Z to 2026-09-10T01:18:18.032Z Record version: sha256:2aee72672a40c15759be8b08c061f6174cea0ed4fdd333b06b2e1d716207682e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Any difference that arises between the book and tax basis of that first component of goodwill in future years is a temporary difference for which a deferred tax liability or asset is recognized based on the requirements of Subtopic 740-10. If that second component is an excess of tax-deductible goodwill over the reported amount of goodwill, the tax benefit for that excess is a temporary difference for which a deferred tax asset is recognized based on the requirements of that Subtopic (see Example 4 \[paragraph [805-740-55-9](https://asc.understandingaccounting.org/asc/740/805/#740-805-55-9)\]). However, if that second component is an excess of goodwill for financial reporting over the tax-deductible amount of goodwill, no deferred taxes are recognized either at the acquisition date or in future years. #### Replacement Awards Classified as Equity ##### [740-805-25-10](https://asc.understandingaccounting.org/asc/740/805/#740-805-25-10) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:18.032Z to 2026-09-10T01:18:18.032Z Record version: sha256:2bee870541ca7234301cb412ab2fccfdae7bed99e5a264d6aa38b5d867b46da2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [805-30-30-9](https://asc.understandingaccounting.org/asc/805/30/#805-30-30-9) identifies the types of awards that are referred to as replacement awards in the Business Combinations Topic. For a replacement award classified as equity that ordinarily would result in postcombination tax deductions under current tax law, an acquirer shall recognize a deferred tax asset for the deductible temporary difference that relates to the portion of the [fair-value](https://asc.understandingaccounting.org/glossary/f/#fair-value "The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.")\-based measure attributed to a precombination exchange of goods or services and therefore included in consideration transferred in the business combination. ##### [740-805-25-11](https://asc.understandingaccounting.org/asc/740/805/#740-805-25-11) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:18.032Z to 2026-09-10T01:18:18.032Z Record version: sha256:23fad98db6a8fbd764b02692f77457e01406be4c8dd4452f025ca62e73db6227 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For a replacement award classified as equity that ordinarily would not result in tax deductions under current tax law, an acquirer shall recognize no deferred tax asset for the portion of the fair-value-based measure attributed to precombination vesting and thus included in consideration transferred in the business combination. A future [event](https://asc.understandingaccounting.org/glossary/e/#event "A happening of consequence to an entity. The term encompasses both transactions and other events affecting an entity."), such as an employee's disqualifying disposition of shares under a tax law, may give rise to a tax deduction for instruments that ordinarily do not result in a tax deduction. The tax effects of such an event shall be recognized only when it occurs. #### Allocation of Consolidated Tax Expense to the Acquired Entity after an Acquisition ##### [740-805-25-12](https://asc.understandingaccounting.org/asc/740/805/#740-805-25-12) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:18.032Z to 2026-09-10T01:18:18.032Z Record version: sha256:2c31e1542a3c597d7a76b3fc384dcff0acbeb5a3403c2abc29ebf23704a2d77b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [740-10-30-27](https://asc.understandingaccounting.org/asc/740/10/#740-10-30-27) provides general guidance on the allocation of consolidated tax expense to the separate financial statements of members of a consolidated group. Under certain conditions, paragraphs [805-50-25-4 through 25-9](https://asc.understandingaccounting.org/asc/805/50/#805-50-25-4) permit an acquired entity to retain its preacquisition historical basis in separately issued financial statements after an acquisition. ##### [740-805-25-13](https://asc.understandingaccounting.org/asc/740/805/#740-805-25-13) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:18.032Z to 2026-09-10T01:18:18.032Z Record version: sha256:df3969a197b1ecb138f8c91fada7e37c8546119afb598aee96601134f5f7ecec Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If there is a continuation of the historical basis for financial reporting, for example, when pushdown accounting is not applied, at the same time as there is a tax basis step-up, the tax benefit from the tax basis step-up shall be credited to the acquired entity's additional paid-in capital consistent with paragraph [740-20-45-11(g)](https://asc.understandingaccounting.org/asc/740/20/#740-20-45-11). 1. a [Subparagraph superseded by Accounting Standards Update No. 2018-09](https://asc.understandingaccounting.org/updates/asu-2018-09/). 2. b [Subparagraph superseded by Accounting Standards Update No. 2018-09](https://asc.understandingaccounting.org/updates/asu-2018-09/). 3. c [Subparagraph superseded by Accounting Standards Update No. 2018-09](https://asc.understandingaccounting.org/updates/asu-2018-09/). ##### [740-805-25-14](https://asc.understandingaccounting.org/asc/740/805/#740-805-25-14) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:18.032Z to 2026-09-10T01:18:18.032Z Record version: sha256:e334c0dd2ff001381cb0d0e155cfd1d0dd375314e4813e811a7d50ee0bc4e4bb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [740-10-50-17](https://asc.understandingaccounting.org/asc/740/10/#740-10-50-17) specifies the disclosure requirements for separately issued financial statements of an entity that is a member of a group that files a consolidated tax return. Source downloaded (UTC): 2026-09-10T01:18:21.803Z to 2026-09-10T01:18:21.803Z Record version: sha256:a9210cb12974bb0799331a296e8452fa9c3debe5d6aa379330998311447d8932 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 740-805-30: 30 Initial Measurement [Read section](https://asc.understandingaccounting.org/asc/740/805/#30-initial-measurement) SEC content: no ##### [740-805-30-1](https://asc.understandingaccounting.org/asc/740/805/#740-805-30-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:21.803Z to 2026-09-10T01:18:21.803Z Record version: sha256:4523400640ab9730575675ddf28aa0901a6acf4ae33a351415e48e5a156cf4aa Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An [acquirer](https://asc.understandingaccounting.org/glossary/a/#acquirer "The entity that obtains control of the acquiree. However, in a business combination in which a variable interest entity (VIE) is acquired, the primary beneficiary of that entity always is the acquirer. (P) December 16, 2026; (N) December 16, 2026805-10-65-5The entity that obtains control of the acquiree.See paragraphs 805-10-25-4805-10-25-5 for guidance on determining the acquirer.") shall measure a [deferred tax asset](https://asc.understandingaccounting.org/glossary/d/#deferred-tax-asset "The deferred tax consequences attributable to deductible temporary differences and carryforwards. A deferred tax asset is measured using the applicable enacted tax rate and provisions of the enacted tax law. A deferred tax asset is reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.") or [deferred tax liability](https://asc.understandingaccounting.org/glossary/d/#deferred-tax-liability "The deferred tax consequences attributable to taxable temporary differences. A deferred tax liability is measured using the applicable enacted tax rate and provisions of the enacted tax law.") arising from the assets acquired and liabilities assumed in a [business combination](https://asc.understandingaccounting.org/glossary/b/#business-combination "A transaction or other event in which an acquirer obtains control of one or more businesses. Transactions sometimes referred to as true mergers or mergers of equals also are business combinations. See also Acquisition by a Not-for-Profit Entity.") in accordance with Subtopic 740-10. Discounting deferred tax assets or liabilities is prohibited for [temporary differences](https://asc.understandingaccounting.org/glossary/t/#temporary-difference "A difference between the tax basis of an asset or liability computed pursuant to the requirements in Subtopic 740-10 for tax positions, and its reported amount in the financial statements that will result in taxable or deductible amounts in future years when the reported amount of the asset or liability is recovered or settled, respectively. Paragraph 740-10-25-20 cites examples of temporary differences. Some temporary differences cannot be identified with a particular asset or liability for financial reporting (see paragraphs 740-10-05-10 and 740-10-25-24740-10-25-25), but those temporary differences do meet both of the following conditions: Result from events that have been recognized in the financial statements Will result in taxable or deductible amounts in future years based on provisions of the tax law. Some events recognized in financial statements do not have tax consequences. Certain revenues are exempt from taxation and certain expenses are not deductible. Events that do not have tax consequences do not give rise to temporary differences.") (except for [leveraged leases](https://asc.understandingaccounting.org/glossary/l/#leveraged-lease "From the perspective of a lessor, a lease that was classified as a leveraged lease in accordance with the leases guidance in effect before the effective date and for which the commencement date is before the effective date."), see Subtopic 842-50) related to business combinations as it is for other temporary differences. ##### [740-805-30-2](https://asc.understandingaccounting.org/asc/740/805/#740-805-30-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:21.803Z to 2026-09-10T01:18:21.803Z Record version: sha256:c27246d0e822ce548c6fcb4070a511913c835224f599332cb8f7deb07726d1d0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See Example 1 (paragraph [805-740-55-2](https://asc.understandingaccounting.org/asc/740/805/#740-805-55-2)) for an illustration of the measurement of deferred tax assets and a related [valuation allowance](https://asc.understandingaccounting.org/glossary/v/#valuation-allowance "The portion of a deferred tax asset for which it is more likely than not that a tax benefit will not be realized.") at the date of a nontaxable business combination. ##### [740-805-30-3](https://asc.understandingaccounting.org/asc/740/805/#740-805-30-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:21.803Z to 2026-09-10T01:18:21.803Z Record version: sha256:81677d54550a084fe2f673d628dea61891358267411a2fe82da246d9c1a8083d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The tax law in some tax jurisdictions may permit the future use of either of the combining entities' deductible temporary differences or [carryforwards](https://asc.understandingaccounting.org/glossary/c/#carryforwards "Deductions or credits that cannot be utilized on the tax return during a year that may be carried forward to reduce taxable income or taxes payable in a future year. An operating loss carryforward is an excess of tax deductions over gross income in a year; a tax credit carryforward is the amount by which tax credits available for utilization exceed statutory limitations. Different tax jurisdictions have different rules about whether excess deductions or credits may be carried forward and the length of the carryforward period. The terms carryforward, operating loss carryforward, and tax credit carryforward refer to the amounts of those items, if any, reported in the tax return for the current year.") to reduce [taxable income](https://asc.understandingaccounting.org/glossary/t/#taxable-income "The excess of taxable revenues over tax deductible expenses and exemptions for the year as defined by the governmental taxing authority.") or taxes payable attributable to the other entity after the business combination. If the combined entity expects to file a consolidated tax return, an acquirer may determine that as a result of the [business combination](https://asc.understandingaccounting.org/glossary/b/#business-combination "A transaction or other event in which an acquirer obtains control of one or more businesses. Transactions sometimes referred to as true mergers or mergers of equals also are business combinations. See also Acquisition by a Not-for-Profit Entity.") its valuation for its deferred tax assets should be changed. For example, the acquirer may be able to utilize the benefit of its tax operating loss carryforwards against the future taxable profit of the [acquiree](https://asc.understandingaccounting.org/glossary/a/#acquiree "The business or businesses that the acquirer obtains control of in a business combination. This term also includes a nonprofit activity or business that a not-for-profit acquirer obtains control of in an acquisition by a not-for-profit entity."). In such cases, the acquirer reduces its valuation allowance based on the weight of available evidence. However, that reduction does not enter into the accounting for the business combination but is recognized as an income tax benefit (or credited directly to contributed capital \[see paragraph [740-10-45-20](https://asc.understandingaccounting.org/asc/740/10/#740-10-45-20)\]). Source downloaded (UTC): 2026-09-10T01:18:25.581Z to 2026-09-10T01:18:25.581Z Record version: sha256:afe52dd95c65a8e160f5b8fefd0860e4e617c69ab4f2d051a21077eaaef08131 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 740-805-35: 35 Subsequent Measurement [Read section](https://asc.understandingaccounting.org/asc/740/805/#35-subsequent-measurement) SEC content: no ##### [740-805-35-1](https://asc.understandingaccounting.org/asc/740/805/#740-805-35-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:25.581Z to 2026-09-10T01:18:25.581Z Record version: sha256:3f5aefba6f6766a6eab472bb03e6029b3822e1053e62c670d89dc24e8fbb478f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An [acquirer](https://asc.understandingaccounting.org/glossary/a/#acquirer "The entity that obtains control of the acquiree. However, in a business combination in which a variable interest entity (VIE) is acquired, the primary beneficiary of that entity always is the acquirer. (P) December 16, 2026; (N) December 16, 2026805-10-65-5The entity that obtains control of the acquiree.See paragraphs 805-10-25-4805-10-25-5 for guidance on determining the acquirer.") may have a [valuation allowance](https://asc.understandingaccounting.org/glossary/v/#valuation-allowance "The portion of a deferred tax asset for which it is more likely than not that a tax benefit will not be realized.") for its own [deferred tax assets](https://asc.understandingaccounting.org/glossary/d/#deferred-tax-asset "The deferred tax consequences attributable to deductible temporary differences and carryforwards. A deferred tax asset is measured using the applicable enacted tax rate and provisions of the enacted tax law. A deferred tax asset is reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.") at the time of a [business combination](https://asc.understandingaccounting.org/glossary/b/#business-combination "A transaction or other event in which an acquirer obtains control of one or more businesses. Transactions sometimes referred to as true mergers or mergers of equals also are business combinations. See also Acquisition by a Not-for-Profit Entity."). The guidance in this Section addresses measurement of that valuation allowance and the potential need to distinguish the separate pasts of the acquirer and the acquired entity in the measurement of valuation allowances together with expected future results of operations. Guidance on the subsequent measurement of deferred tax assets or liabilities arising from the assets acquired and liabilities assumed in a business combination, and any income tax uncertainties of an acquiree that exist at the acquisition date, or that arise as a result of the acquisition, is provided in Subtopic 740-10. ##### [740-805-35-2](https://asc.understandingaccounting.org/asc/740/805/#740-805-35-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:25.581Z to 2026-09-10T01:18:25.581Z Record version: sha256:fcbbb5836a43624c89a439f171fadf3fb85f08c76e57ed172aea9dbd7db921eb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Changes in the acquirer's valuation allowance, if any, that result from the business combination shall reflect any provisions in the tax law that restrict the future use of either of the combining entities' deductible temporary differences or [carryforwards](https://asc.understandingaccounting.org/glossary/c/#carryforwards "Deductions or credits that cannot be utilized on the tax return during a year that may be carried forward to reduce taxable income or taxes payable in a future year. An operating loss carryforward is an excess of tax deductions over gross income in a year; a tax credit carryforward is the amount by which tax credits available for utilization exceed statutory limitations. Different tax jurisdictions have different rules about whether excess deductions or credits may be carried forward and the length of the carryforward period. The terms carryforward, operating loss carryforward, and tax credit carryforward refer to the amounts of those items, if any, reported in the tax return for the current year.") to reduce [taxable income](https://asc.understandingaccounting.org/glossary/t/#taxable-income "The excess of taxable revenues over tax deductible expenses and exemptions for the year as defined by the governmental taxing authority.") or taxes payable attributable to the other entity after the business combination. ##### [740-805-35-3](https://asc.understandingaccounting.org/asc/740/805/#740-805-35-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:25.581Z to 2026-09-10T01:18:25.581Z Record version: sha256:f445bc75825b323a6382151130d45f303867e25f376e84048a2671b2dbc4b38c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Any changes in the acquirer's valuation allowance shall be accounted for in accordance with paragraph [805-740-30-3](https://asc.understandingaccounting.org/asc/740/805/#740-805-30-3). For example, the tax law may limit the use of the acquired entity's deductible temporary differences and carryforwards to subsequent taxable income of the acquired entity included in a consolidated tax return for the combined entity. In that circumstance, or if the acquired entity will file a separate tax return, the need for a valuation allowance for some portion or all of the acquired entity's deferred tax assets for deductible temporary differences and carryforwards is assessed based on the acquired entity's separate past and expected future results of operations. Source downloaded (UTC): 2026-09-10T01:18:27.324Z to 2026-09-10T01:18:27.324Z Record version: sha256:46faa113c67e93b6091be28ebe5a2e537a2617b1e22dd113b2323c0bc3ac4ec1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 740-805-45: 45 Other Presentation Matters [Read section](https://asc.understandingaccounting.org/asc/740/805/#45-other-presentation-matters) SEC content: no ##### [740-805-45-1](https://asc.understandingaccounting.org/asc/740/805/#740-805-45-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:27.324Z to 2026-09-10T01:18:27.324Z Record version: sha256:51a5910f5cd2e1fa8c60f78154a0b7f5648e7ae97e6b62472516e94f4e5f4beb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Section addresses how an [acquirer](https://asc.understandingaccounting.org/glossary/a/#acquirer "The entity that obtains control of the acquiree. However, in a business combination in which a variable interest entity (VIE) is acquired, the primary beneficiary of that entity always is the acquirer. (P) December 16, 2026; (N) December 16, 2026805-10-65-5The entity that obtains control of the acquiree.See paragraphs 805-10-25-4805-10-25-5 for guidance on determining the acquirer.") recognizes changes in [valuation allowances](https://asc.understandingaccounting.org/glossary/v/#valuation-allowance "The portion of a deferred tax asset for which it is more likely than not that a tax benefit will not be realized.") and [tax positions](https://asc.understandingaccounting.org/glossary/t/#tax-position "A position in a previously filed tax return or a position expected to be taken in a future tax return that is reflected in measuring current or deferred income tax assets and liabilities for interim or annual periods. A tax position can result in a permanent reduction of income taxes payable, a deferral of income taxes otherwise currently payable to future years, or a change in the expected realizability of deferred tax assets. The term tax position also encompasses, but is not limited to: A decision not to file a tax return An allocation or a shift of income between jurisdictions The characterization of income or a decision to exclude reporting taxable income in a tax return A decision to classify a transaction, entity, or other position in a tax return as tax exempt An entity's status, including its status as a pass-through entity or a tax-exempt not-for-profit entity.") related to an acquisition and the accounting for tax deductions for replacement awards. #### Changes in Valuation Allowances ##### [740-805-45-2](https://asc.understandingaccounting.org/asc/740/805/#740-805-45-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:27.324Z to 2026-09-10T01:18:27.324Z Record version: sha256:394b5ff7ac5b212a66461164e01bcddf9b3efe49ecec35ffda0ddbae8f971e9f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The effect of a change in a valuation allowance for an acquired entity's [deferred tax asset](https://asc.understandingaccounting.org/glossary/d/#deferred-tax-asset "The deferred tax consequences attributable to deductible temporary differences and carryforwards. A deferred tax asset is measured using the applicable enacted tax rate and provisions of the enacted tax law. A deferred tax asset is reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.") shall be recognized as follows: 1. a Changes within the measurement period that result from new information about facts and circumstances that existed at the [acquisition date](https://asc.understandingaccounting.org/glossary/a/#acquisition-date "The date on which the acquirer obtains control of the acquiree.") shall be recognized through a corresponding adjustment to [goodwill](https://asc.understandingaccounting.org/glossary/g/#goodwill "An asset representing the future economic benefits arising from other assets acquired in a business combination, acquired in an acquisition by a not-for-profit entity, or recognized by a joint venture upon formation that are not individually identified and separately recognized. For ease of reference, this term also includes the immediate charge recognized by not-for-profit entities in accordance with paragraph 958-805-25-29."). However, once goodwill is reduced to zero, an acquirer shall recognize any additional decrease in the valuation allowance as a bargain purchase in accordance with paragraphs [805-30-25-2 through 25-4](https://asc.understandingaccounting.org/asc/805/30/#805-30-25-2) . See paragraphs [805-10-25-13 through 25-19](https://asc.understandingaccounting.org/asc/805/10/#805-10-25-13) and [805-10-30-2 through 30-3](https://asc.understandingaccounting.org/asc/805/10/#805-10-30-2) for a discussion of the measurement period in the context of a [business combination](https://asc.understandingaccounting.org/glossary/b/#business-combination "A transaction or other event in which an acquirer obtains control of one or more businesses. Transactions sometimes referred to as true mergers or mergers of equals also are business combinations. See also Acquisition by a Not-for-Profit Entity."). 2. b All other changes shall be reported as a reduction or increase to income tax expense (or a direct adjustment to contributed capital as required by paragraphs [740-10-45-20 through 45-21](https://asc.understandingaccounting.org/asc/740/10/#740-10-45-20) ). ##### [740-805-45-3](https://asc.understandingaccounting.org/asc/740/805/#740-805-45-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:27.324Z to 2026-09-10T01:18:27.324Z Record version: sha256:21d69268b0c174259cca0d02dfa33b58f803793cf994cf1221ca90d0013cfecd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Example 2 (see paragraph [805-740-55-4](https://asc.understandingaccounting.org/asc/740/805/#740-805-55-4)) illustrates this guidance relating to accounting for a change in an acquired entity's valuation allowance. #### Changes in Tax Positions ##### [740-805-45-4](https://asc.understandingaccounting.org/asc/740/805/#740-805-45-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:27.324Z to 2026-09-10T01:18:27.324Z Record version: sha256:5e402491076aeaf083416945394a64286c8b9ad8562745f5dd04e4ffb2d5962e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The effect of a change to an acquired [tax position](https://asc.understandingaccounting.org/glossary/t/#tax-position "A position in a previously filed tax return or a position expected to be taken in a future tax return that is reflected in measuring current or deferred income tax assets and liabilities for interim or annual periods. A tax position can result in a permanent reduction of income taxes payable, a deferral of income taxes otherwise currently payable to future years, or a change in the expected realizability of deferred tax assets. The term tax position also encompasses, but is not limited to: A decision not to file a tax return An allocation or a shift of income between jurisdictions The characterization of income or a decision to exclude reporting taxable income in a tax return A decision to classify a transaction, entity, or other position in a tax return as tax exempt An entity's status, including its status as a pass-through entity or a tax-exempt not-for-profit entity."), or those that arise as a result of the acquisition, shall be recognized as follows: 1. a Changes within the measurement period that result from new information about facts and circumstances that existed as of the acquisition date shall be recognized through a corresponding adjustment to goodwill. However, once goodwill is reduced to zero, the remaining portion of that adjustment shall be recognized as a gain on a bargain purchase in accordance with paragraphs [805-30-25-2 through 25-4](https://asc.understandingaccounting.org/asc/805/30/#805-30-25-2) . 2. b All other changes in acquired income tax positions shall be accounted for in accordance with the accounting requirements for tax positions established in Subtopic 740-10. #### Tax Deductions for Replacement Awards ##### [740-805-45-5](https://asc.understandingaccounting.org/asc/740/805/#740-805-45-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:27.324Z to 2026-09-10T01:18:27.324Z Record version: sha256:d9b4a851b1db568557eab7a401ea13a371c98884412cc77a22a98a1ed7b85362 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [805-30-30-9](https://asc.understandingaccounting.org/asc/805/30/#805-30-30-9) identifies the types of awards that are referred to as replacement awards in this Topic. After the acquisition date, the deduction reported on a tax return for a replacement award classified as equity may be different from the [fair-value](https://asc.understandingaccounting.org/glossary/f/#fair-value "The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.")\-based measure of the award. The tax effect of that difference shall be recognized as income tax expense or benefit in the income statement of the acquirer. ##### [740-805-45-6](https://asc.understandingaccounting.org/asc/740/805/#740-805-45-6) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:27.324Z to 2026-09-10T01:18:27.324Z Record version: sha256:89e8a419f53d21a0d8def24c821450f9812c9a16f6a6a14b65b80222b22c7731 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2016-09](https://asc.understandingaccounting.org/updates/asu-2016-09/). Source downloaded (UTC): 2026-09-10T01:18:29.723Z to 2026-09-10T01:18:29.723Z Record version: sha256:68bb00aee82a89ae09582c5b2961eb5598aabbdfad54ea44f6948ea726c47b7f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 740-805-50: 50 Disclosure [Read section](https://asc.understandingaccounting.org/asc/740/805/#50-disclosure) SEC content: no #### Change in Acquirer's Valuation Allowance as a Result of a Business Combination ##### [740-805-50-1](https://asc.understandingaccounting.org/asc/740/805/#740-805-50-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:29.723Z to 2026-09-10T01:18:29.723Z Record version: sha256:e2af4209227d7869b8de9b2f668b75151de20c74d3b911a490e974a6b64efb11 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [805-740-30-3](https://asc.understandingaccounting.org/asc/740/805/#740-805-30-3) describes a situation where an [acquirer](https://asc.understandingaccounting.org/glossary/a/#acquirer "The entity that obtains control of the acquiree. However, in a business combination in which a variable interest entity (VIE) is acquired, the primary beneficiary of that entity always is the acquirer. (P) December 16, 2026; (N) December 16, 2026805-10-65-5The entity that obtains control of the acquiree.See paragraphs 805-10-25-4805-10-25-5 for guidance on determining the acquirer.") reduces its [valuation allowance](https://asc.understandingaccounting.org/glossary/v/#valuation-allowance "The portion of a deferred tax asset for which it is more likely than not that a tax benefit will not be realized.") for deferred tax assets as a result of a [business combination](https://asc.understandingaccounting.org/glossary/b/#business-combination "A transaction or other event in which an acquirer obtains control of one or more businesses. Transactions sometimes referred to as true mergers or mergers of equals also are business combinations. See also Acquisition by a Not-for-Profit Entity."). Paragraph [740-10-50-9(h)](https://asc.understandingaccounting.org/asc/740/10/#740-10-50-9) requires disclosure of adjustments of the beginning-of-the-year balance of a valuation allowance because of a change in circumstances that causes a change in judgment about the realizability of the related [deferred tax asset](https://asc.understandingaccounting.org/glossary/d/#deferred-tax-asset "The deferred tax consequences attributable to deductible temporary differences and carryforwards. A deferred tax asset is measured using the applicable enacted tax rate and provisions of the enacted tax law. A deferred tax asset is reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.") in future years. That would include, for example, any [acquisition-date](https://asc.understandingaccounting.org/glossary/a/#acquisition-date "The date on which the acquirer obtains control of the acquiree.") income tax benefits or expenses recognized from changes in the acquirer's valuation allowance for its previously existing deferred tax assets as a result of a business combination. Source downloaded (UTC): 2026-09-10T01:18:32.090Z to 2026-09-10T01:18:32.090Z Record version: sha256:0f7bb656cb7260d7ecc75b0e764dc8dbf61aa2e06a5f0fabda41f77b4416eaf3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 740-805-55: 55 Implementation Guidance and Illustrations [Read section](https://asc.understandingaccounting.org/asc/740/805/#55-implementation-guidance-and-illustrations) SEC content: no ##### [740-805-55-1](https://asc.understandingaccounting.org/asc/740/805/#740-805-55-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:32.090Z to 2026-09-10T01:18:32.090Z Record version: sha256:47416f997d47717cd45533bc3dd02fced7b372f9a88c05f2b78a23bce1b42c64 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Section is an integral part of the requirements of this Subtopic. This Section provides illustrations that address the application of accounting requirements to specific aspects of accounting for [income taxes](https://asc.understandingaccounting.org/glossary/i/#income-taxes "Domestic and foreign federal (national), state, and local (including franchise) taxes based on income.") in connection with [business combinations](https://asc.understandingaccounting.org/glossary/b/#business-combination "A transaction or other event in which an acquirer obtains control of one or more businesses. Transactions sometimes referred to as true mergers or mergers of equals also are business combinations. See also Acquisition by a Not-for-Profit Entity."). The illustrations that follow make various assumptions about the tax law. These assumptions about the tax law are for illustrative purposes only. #### Illustrations ##### [740-805-55-2](https://asc.understandingaccounting.org/asc/740/805/#740-805-55-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:32.090Z to 2026-09-10T01:18:32.090Z Record version: sha256:33e32b5054564bde3954efda33f1940d19b9d7095b7b876b5b75477505a46085 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the guidance in paragraphs [805-740-25-2 through 25-3](https://asc.understandingaccounting.org/asc/740/805/#740-805-25-2) and [805-740-30-1](https://asc.understandingaccounting.org/asc/740/805/#740-805-30-1) relating to the recognition and measurement of a [deferred tax liability](https://asc.understandingaccounting.org/glossary/d/#deferred-tax-liability "The deferred tax consequences attributable to taxable temporary differences. A deferred tax liability is measured using the applicable enacted tax rate and provisions of the enacted tax law.") and [deferred tax asset](https://asc.understandingaccounting.org/glossary/d/#deferred-tax-asset "The deferred tax consequences attributable to deductible temporary differences and carryforwards. A deferred tax asset is measured using the applicable enacted tax rate and provisions of the enacted tax law. A deferred tax asset is reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.") in a nontaxable business combination. The assumptions are as follows: 1. a The enacted tax rate is 40 percent for all future years, and amortization of [goodwill](https://asc.understandingaccounting.org/glossary/g/#goodwill "An asset representing the future economic benefits arising from other assets acquired in a business combination, acquired in an acquisition by a not-for-profit entity, or recognized by a joint venture upon formation that are not individually identified and separately recognized. For ease of reference, this term also includes the immediate charge recognized by not-for-profit entities in accordance with paragraph 958-805-25-29.") is not deductible for tax purposes. 2. b A wholly owned entity is acquired for $20,000, and the entity has no leveraged leases. 3. c The tax basis of the net assets acquired (other than goodwill) is $5,000, and the recognized value is $12,000. Future recovery of the assets and settlement of the liabilities at their assigned values will result in $20,000 of taxable amounts and $13,000 of deductible amounts that can be offset against each other. Therefore, no [valuation allowance](https://asc.understandingaccounting.org/glossary/v/#valuation-allowance "The portion of a deferred tax asset for which it is more likely than not that a tax benefit will not be realized.") is necessary. ##### [740-805-55-3](https://asc.understandingaccounting.org/asc/740/805/#740-805-55-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:32.090Z to 2026-09-10T01:18:32.090Z Record version: sha256:06b12254a287f77afdd40f8c2a4cff06b40990233756bf306bd7c5f36d23481a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The amounts recorded to account for the business combination transaction are as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-C109C0BA-D796-40DB-920D-62D26EF577CB-low.gif) Recognized value of the net assets (other than goodwill) acquired " $12,000 " "Deferred tax liability for $20,000 of taxable temporary differences" " (8,000)" "Deferred tax asset for $13,000 of deductible temporary differences" " 5,200 " Goodwill " 10,800 " Consideration paid for the acquiree " $20,000 " ##### [740-805-55-4](https://asc.understandingaccounting.org/asc/740/805/#740-805-55-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:32.090Z to 2026-09-10T01:18:32.090Z Record version: sha256:e6d637864a90311365630268ec2cd10ea313eb2a3fe7290e94306b101ee2aef8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the guidance in paragraphs [805-740-25-3](https://asc.understandingaccounting.org/asc/740/805/#740-805-25-3) and [805-740-45-2](https://asc.understandingaccounting.org/asc/740/805/#740-805-45-2) relating to the recognition of a deferred tax asset and the related valuation allowance for acquired [deductible temporary differences](https://asc.understandingaccounting.org/glossary/d/#deductible-temporary-difference "Temporary differences that result in deductible amounts in future years when the related asset or liability is recovered or settled, respectively. See Temporary Difference.") at the date of a nontaxable business combination and in subsequent periods when the tax law limits the use of an acquired entity's deductible temporary differences and [carryforwards](https://asc.understandingaccounting.org/glossary/c/#carryforwards "Deductions or credits that cannot be utilized on the tax return during a year that may be carried forward to reduce taxable income or taxes payable in a future year. An operating loss carryforward is an excess of tax deductions over gross income in a year; a tax credit carryforward is the amount by which tax credits available for utilization exceed statutory limitations. Different tax jurisdictions have different rules about whether excess deductions or credits may be carried forward and the length of the carryforward period. The terms carryforward, operating loss carryforward, and tax credit carryforward refer to the amounts of those items, if any, reported in the tax return for the current year.") to subsequent [taxable income](https://asc.understandingaccounting.org/glossary/t/#taxable-income "The excess of taxable revenues over tax deductible expenses and exemptions for the year as defined by the governmental taxing authority.") of the acquired entity in a consolidated tax return. The assumptions are as follows: 1. a The enacted tax rate is 40 percent for all future years. 2. b The purchase price is $20,000, and the assigned value of the net assets acquired is also $20,000. 3. c The tax basis of the net assets acquired is $60,000. The $40,000 ($60,000 - $20,000) of deductible temporary differences at the combination date is primarily attributable to an allowance for loan losses. Provisions in the tax law limit the use of those future tax deductions to subsequent taxable income of the acquired entity. 4. d The acquired entity's actual pretax results for the two preceding years and the expected results for the year of the business combination are as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-C662A027-0ECC-4994-A26A-0F2C27FC6102-low.gif) Year 1 " $(15,000)" Year 2 " (10,000)" Year 3 to the combination date " (5,000)" Expected results for the remainder of Year 3 " (5,000)" 5. e Based on assessments of all evidence available at the date of the business combination in Year 3 and at the end of Year 3, management concludes that a valuation allowance is needed at both dates for the entire amount of the deferred tax asset related to the acquired deductible temporary differences. ##### [740-805-55-5](https://asc.understandingaccounting.org/asc/740/805/#740-805-55-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:32.090Z to 2026-09-10T01:18:32.090Z Record version: sha256:416d449638c7de2c2d5c161ce0ca5ff7475b11a7cb754f88800800dc5c1cc6ef Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The acquired entity's pretax financial income and taxable income for Year 3 (after the business combination) and Year 4 are as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-7583C246-D22B-427F-BFAE-98A21C2BE95C-low.gif) Year 3 Year 4 Pretax financial income " $15,000 " " $10,000 " Reversals of acquired deductible temporary differences " (15,000)" " (10,000)" Taxable income $- $- ##### [740-805-55-6](https://asc.understandingaccounting.org/asc/740/805/#740-805-55-6) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:32.090Z to 2026-09-10T01:18:32.090Z Record version: sha256:62906393b38a9bccc4faea33235fe703c1fd4b1005b8e57bc05326e7cd233e4e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. At the end of Year 4, the remaining balance of acquired deductible temporary differences is $15,000 ($40,000 − $25,000). The deferred tax asset is $6,000 ($15,000 at 40 percent). Based on an assessment of all available evidence at the end of Year 4, management concludes that no valuation allowance is needed for that $6,000 deferred tax asset. Elimination of the $6,000 valuation allowance results in a $6,000 deferred tax benefit that is reported as a reduction of deferred income tax expense because the reversal of the valuation allowance occurred after the measurement period (see paragraph [805-740-45-2](https://asc.understandingaccounting.org/asc/740/805/#740-805-45-2)). Tax benefits realized in Years 3 and 4 attributable to reversals of acquired deductible temporary differences are reported as a zero current income tax expense. The consolidated statement of earnings would include the following amounts attributable to the acquired entity for Year 3 (after the business combination) and Year 4. - ![](https://asc.understandingaccounting.org/asc-img/GUID-6B9A488E-53A1-4511-B4CB-909E62E200A5-low.gif) Year 3 Year 4 Pretax financial income " $15,000 " " $10,000 " Income tax expense (benefit): Current - - Deferred - " (6,000)" Net income " $15,000 " " $16,000 " ##### [740-805-55-7](https://asc.understandingaccounting.org/asc/740/805/#740-805-55-7) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:32.090Z to 2026-09-10T01:18:32.090Z Record version: sha256:f8b11ea51edd6364fe098d9b155138f59443bc722a5d6c276c28062584b5ef5f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the guidance in paragraph [805-740-25-3](https://asc.understandingaccounting.org/asc/740/805/#740-805-25-3) if there is an elimination of the need for a valuation allowance for the deferred tax asset for an acquired loss carryforward based on offset against [taxable temporary differences](https://asc.understandingaccounting.org/glossary/t/#taxable-temporary-difference "Temporary differences that result in taxable amounts in future years when the related asset is recovered or the related liability is settled. See Temporary Difference.") of the acquiring entity in a nontaxable business combination. This Example assumes that the tax law permits use of an acquired entity's deductible temporary differences and carryforwards to reduce taxable income or taxes payable attributable to the acquiring entity in a consolidated tax return. The other assumptions are as follows: 1. a The enacted tax rate is 40 percent for all future years. 2. b The purchase price is $20,000. The tax basis of the identified net assets acquired is $5,000, and the assigned value is $12,000, that is, there are $7,000 of taxable temporary differences. The acquired entity also has a $16,000 operating loss carryforward, which, under the tax law, may be used by the acquiring entity in the consolidated tax return. 3. c The acquiring entity has temporary differences that will result in $30,000 of net taxable amounts in future years. 4. d All temporary differences of the acquired and acquiring entities will result in taxable amounts before the end of the acquired entity's loss carryforward period. ##### [740-805-55-8](https://asc.understandingaccounting.org/asc/740/805/#740-805-55-8) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:32.090Z to 2026-09-10T01:18:32.090Z Record version: sha256:02728627808837ea049380d4b45a63595dbe1b2cc7c320756fbf059eb86f498a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In assessing the need for a valuation allowance, future taxable income exclusive of reversing [temporary differences](https://asc.understandingaccounting.org/glossary/t/#temporary-difference "A difference between the tax basis of an asset or liability computed pursuant to the requirements in Subtopic 740-10 for tax positions, and its reported amount in the financial statements that will result in taxable or deductible amounts in future years when the reported amount of the asset or liability is recovered or settled, respectively. Paragraph 740-10-25-20 cites examples of temporary differences. Some temporary differences cannot be identified with a particular asset or liability for financial reporting (see paragraphs 740-10-05-10 and 740-10-25-24740-10-25-25), but those temporary differences do meet both of the following conditions: Result from events that have been recognized in the financial statements Will result in taxable or deductible amounts in future years based on provisions of the tax law. Some events recognized in financial statements do not have tax consequences. Certain revenues are exempt from taxation and certain expenses are not deductible. Events that do not have tax consequences do not give rise to temporary differences.") and carryforwards (see paragraph [740-10-30-18(b)](https://asc.understandingaccounting.org/asc/740/10/#740-10-30-18)) need not be considered because the $16,000 operating loss carryforward will offset the acquired entity's $7,000 of taxable temporary differences and another $9,000 of the acquiring entity's taxable temporary differences. The amounts recorded to account for the purchase transaction are as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-2920A900-5681-4A94-88DF-4B1545A97E80-low.gif) Assigned value of the identified net assets acquired " $12,000 " "Deferred tax liability recognized for the acquired entity's taxable temporary differences ($7,000 at 40 percent)" " (2,800)" "Deferred tax asset recognized for the acquired loss carryforward based on offset against the acquired company's taxable temporary differences ($7,000 at 40 percent)" " 2,800 " "Deferred tax asset recognized for the acquired loss carryforward based on offset against the acquiring entity's taxable temporary differences ($9,000 at 40 percent)" " 3,600 " Goodwill " 4,400 " Purchase price of the acquired entity " $20,000 " ##### [740-805-55-9](https://asc.understandingaccounting.org/asc/740/805/#740-805-55-9) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:32.090Z to 2026-09-10T01:18:32.090Z Record version: sha256:1743972b73692f48162d25fce02aac27d9dd7bcf920390ebc3a6953c1a15d92e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the guidance in paragraphs [805-740-25-8 through 25-9](https://asc.understandingaccounting.org/asc/740/805/#740-805-25-8) on accounting for the [tax consequences](https://asc.understandingaccounting.org/glossary/t/#tax-consequences "The effects on income taxes—current or deferred—of an event.") of goodwill when tax-deductible goodwill exceeds the goodwill recorded for financial reporting at the [acquisition date](https://asc.understandingaccounting.org/glossary/a/#acquisition-date "The date on which the acquirer obtains control of the acquiree."). The assumptions are as follows: 1. a At the acquisition date, the reported amount of goodwill for financial reporting purposes is $600 before taking into consideration the tax benefit associated with goodwill and the tax basis of goodwill is $900. 2. b The tax rate is 40 percent for all years. ##### [740-805-55-10](https://asc.understandingaccounting.org/asc/740/805/#740-805-55-10) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:32.090Z to 2026-09-10T01:18:32.090Z Record version: sha256:ba825f3ac57c811195ab7608e3a80d4eeee0982e5e5549e8cf32460a7d38b0ef Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. As of the acquisition date, the goodwill for financial reporting purposes is adjusted for the tax benefit associated with goodwill by using the following simultaneous equations method. In the following equation, the Preliminary Temporary Difference variable is the excess of tax goodwill over book goodwill, before taking into consideration the tax benefit associated with goodwill, and the Deferred Tax Asset variable is the resulting deferred tax asset. - (Tax Rate ÷ \[1 − Tax Rate\]) × Preliminary Temporary Difference = Deferred Tax Asset ##### [740-805-55-11](https://asc.understandingaccounting.org/asc/740/805/#740-805-55-11) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:32.090Z to 2026-09-10T01:18:32.090Z Record version: sha256:e853ff9d15bb2d2d1d6127bd4c4b5568c9316d0a11c3170425cedd5bb330d930 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In this Example, the following variables are known: - Tax rate = 40 percent - Preliminary Temporary Difference = $300 ($900 − $600) ##### [740-805-55-12](https://asc.understandingaccounting.org/asc/740/805/#740-805-55-12) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:32.090Z to 2026-09-10T01:18:32.090Z Record version: sha256:9644f7211f1bc087ba091a097da8c8ce07c3f602cb023d7a4a09e38dea8b80d9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The unknown variable (Deferred Tax Asset) equals $200, and the goodwill for financial reporting purposes would be adjusted with the following entry. - ![](https://asc.understandingaccounting.org/asc-img/GUID-14B013F6-1DEE-44E5-B4E3-0378FFA67919-low.gif) Deferred tax asset 200 Goodwill 200 ##### [740-805-55-13](https://asc.understandingaccounting.org/asc/740/805/#740-805-55-13) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:32.090Z to 2026-09-10T01:18:32.090Z Record version: sha256:47d26bdc9dab7e6623512013ba8a87da3cbfadcdb65b7f7fa2fcd6650afac556 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Goodwill for financial reporting would be established at the acquisition date at $400 ($600 less the $200 credit adjustment).