Paragraph
805-10-05-4 summarizes the four steps in the acquisition method. This Section establishes the requirements for the following two of the four steps:
- a
- b
This Section also provides guidance on all of the following:
- a
Particular types of business combinations
- b
The measurement period
- c
Determining what is part of the business combination transaction.
For each business combination, one of the combining entities shall be identified as the acquirer.
The guidance in the General Subsections of Subtopic
810-10 related to determining the existence of a controlling financial interest shall be used to identify the acquirer—the entity that obtains
control of the
acquiree.
If a business combination has occurred but applying that guidance does not clearly indicate which of the combining entities is the acquirer, the factors in paragraphs shall be considered in making that determination. However, in a business combination in which a variable interest entity (VIE) is acquired, the primary beneficiary of that entity always is the acquirer. The determination of which party, if any, is the primary beneficiary of a VIE shall be made in accordance with the guidance in the Variable Interest Entities Subsections of Subtopic 810-10, not by applying either the guidance in the General Subsections of that Subtopic, relating to a controlling financial interest, or in paragraphs . (P) December 16, 2026; (N) December 16, 2026
805-10-65-5The guidance in the General Subsections of Subtopic
810-10 related to determining the existence of a controlling financial interest shall be used to identify the acquirer—the entity that obtains
control of the
acquiree.
If a business combination has occurred but applying that guidance does not clearly indicate which of the combining entities is the acquirer, the factors in paragraphs shall be considered in making that determination. However, in a business combination in which a variable interest entity (VIE) is acquired, the primary beneficiary of that entity is the acquirer unless the business combination is effected primarily by exchanging equity interests.The determination of which party, if any, is the primary beneficiary of a VIE shall be made in accordance with the guidance in the Variable Interest Entities Subsections of Subtopic 810-10, not by applying either the guidance in the General Subsections of that Subtopic, relating to a controlling financial interest, or the guidance in paragraphs . For a business combination that is effected primarily by exchanging equity interests in which a VIE is acquired, the factors in paragraphs shall be considered in determining which entity is the accounting acquirer.The acquirer shall identify the acquisition date, which is the date on which it obtains control of the acquiree.
The date on which the acquirer obtains control of the acquiree generally is the date on which the acquirer legally transfers the consideration, acquires the assets, and assumes the liabilities of the acquiree—the closing date. However, the acquirer might obtain control on a date that is either earlier or later than the closing date. For example, the acquisition date precedes the closing date if a written agreement provides that the acquirer obtains control of the acquiree on a date before the closing date. An acquirer shall consider all pertinent facts and circumstances in identifying the acquisition date.
The following guidance describes the accounting for a business combination achieved in stages and a business combination achieved without the transfer of consideration.
An acquirer sometimes obtains control of an acquiree in which it held an equity interest immediately before the acquisition date. For example, on December 31, 20X1, Entity A holds a 35 percent noncontrolling equity interest in Entity B. On that date, Entity A purchases an additional 40 percent interest in Entity B, which gives it control of Entity B. This Topic refers to such a transaction as a business combination achieved in stages, sometimes also referred to as a step acquisition.
An acquirer sometimes obtains control of an acquiree without transferring consideration. The acquisition method of accounting for a business combination applies to those combinations. Such circumstances include any of the following:
- a
The acquiree repurchases a sufficient number of its own shares for an existing investor (the acquirer) to obtain control.
- b
Minority veto rights lapse that previously kept the acquirer from controlling an acquiree in which the acquirer held the majority voting interest.
- c
The acquirer and acquiree agree to combine their businesses by contract alone. The acquirer transfers no consideration in exchange for control of an acquiree and holds no equity interests in the acquiree, either on the acquisition date or previously. Examples of business combinations achieved by contract alone include bringing two businesses together in a stapling arrangement or forming a dual-listed corporation.
In a business combination achieved by contract alone, the acquirer shall attribute to the equity holders of the acquiree the amount of the acquiree's net assets recognized in accordance with the requirements of this Topic. In other words, the equity interests in the acquiree held by parties other than the acquirer are a
noncontrolling interest in the acquirer's postcombination financial statements even if the result is that all of the equity interests in the acquiree are attributed to the noncontrolling interest.
During the measurement period, the acquirer also shall recognize additional assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of those assets and liabilities as of that date. The measurement period ends as soon as the acquirer receives the information it was seeking about facts and circumstances that existed as of the acquisition date or learns that more information is not obtainable. However, the measurement period shall not exceed one year from the acquisition date.
The measurement period is the period after the acquisition date during which the acquirer may adjust the provisional amounts recognized for a business combination.
The measurement period provides the acquirer with a reasonable time to obtain the information necessary to identify and measure any of the following as of the acquisition date in accordance with the requirements of this Topic: - a
The identifiable assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree (see Subtopic
805-20)
- b
The consideration transferred for the acquiree (or the other amount used in measuring goodwill in accordance with paragraphs ) - c
In a business combination achieved in stages, the equity interest in the acquiree previously held by the acquirer (see paragraph 805-30-30-1(a)(3)) - d
The resulting goodwill recognized in accordance with paragraph 805-30-30-1 or the gain on a bargain purchase recognized in accordance with paragraph 805-30-25-2.
The acquirer recognizes an increase (decrease) in the provisional amount recognized for an identifiable asset (liability) by means of a decrease (increase) in goodwill. However, new information obtained during the measurement period sometimes may result in an adjustment to the provisional amount of more than one asset or liability. For example, the acquirer might have assumed a liability to pay damages related to an accident in one of the acquiree's facilities, part or all of which are covered by the acquiree's liability insurance policy. If the acquirer obtains new information during the measurement period about the acquisition-date fair value of that liability, the adjustment to goodwill resulting from a change to the provisional amount recognized for the liability would be offset (in whole or in part) by a corresponding adjustment to goodwill resulting from a change to the provisional amount recognized for the claim receivable from the insurer.
Paragraphs
require consideration of all pertinent factors in determining whether information obtained after the acquisition date should result in an adjustment to the provisional amounts recognized or whether that information results from events that occurred after the acquisition date.
After the measurement period ends, the acquirer shall revise the accounting for a business combination only to correct an error in accordance with Topic
250.
A transaction entered into by or on behalf of the acquirer or primarily for the benefit of the acquirer or the combined entity, rather than primarily for the benefit of the acquiree (or its former owners) before the combination, is likely to be a separate transaction. The following are examples of separate transactions that are not to be included in applying the acquisition method:
- a
A transaction that in effect settles preexisting relationships between the acquirer and acquiree (see paragraphs ) - b
A transaction that compensates employees or former owners of the acquiree for future services (see paragraphs ) - c
A transaction that reimburses the acquiree or its former owners for paying the acquirer's acquisition-related costs (see paragraph 805-10-25-23).
Paragraphs
,
,
,
, and Example 2 (see paragraph
805-10-55-30) provide additional guidance for determining whether a transaction is separate from the business combination transaction.
Acquisition-related costs are costs the acquirer incurs to effect a business combination. Those costs include finder's fees; advisory, legal, accounting, valuation, and other professional or consulting fees; general administrative costs, including the costs of maintaining an internal acquisitions department; and costs of registering and issuing debt and equity securities. The acquirer shall account for acquisition-related costs as expenses in the periods in which the costs are incurred and the services are received, with one exception. The costs to issue debt or equity securities shall be recognized in accordance with other applicable GAAP.