# ASC 805-10-55: Business Combinations — Overall — 55 Implementation Guidance and Illustrations Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/805/10/#55-implementation-guidance-and-illustrations) 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): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:cac766ebbe02af91208da5087b2a2d3352176b97d9f1273e4eb29f1a851cca75 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 805-10-55: 55 Implementation Guidance and Illustrations [Read section](https://asc.understandingaccounting.org/asc/805/10/#55-implementation-guidance-and-illustrations) SEC content: no ##### [805-10-55-1](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:304b54edfa67650d87c74ad7a99ed7719b8b8a84780c0cf8636537b900a3635d 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 additional guidance and illustrations that address the general application of accounting requirements for [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."). #### Implementation Guidance ##### [805-10-55-2](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:eab472fac06146e461a7b8d3bf0c82b01715ae47f0db299455127200b3bfb99c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [805-10-25-1](https://asc.understandingaccounting.org/asc/805/10/#805-10-25-1) requires an entity to determine whether a transaction or event is a business combination. In a business combination, 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.") might obtain [control](https://asc.understandingaccounting.org/glossary/c/#control "The same as the meaning of controlling financial interest in paragraph 810-10-15-8.") 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.") in a variety of ways, including any of the following: 1. a By transferring cash, cash equivalents, or other assets (including net assets that constitute a [business](https://asc.understandingaccounting.org/glossary/b/#business "Paragraphs 805-10-55-3A805-10-55-4805-10-55-5805-10-55-6 and 805-10-55-8805-10-55-9 define what is considered a business.")) 2. b By incurring liabilities 3. c By issuing [equity interests](https://asc.understandingaccounting.org/glossary/e/#equity-interests "Used broadly to mean ownership interests of investor-owned entities; owner, member, or participant interests of mutual entities; and owner or member interests in the net assets of not-for-profit entities.") 4. d By providing more than one type of consideration 5. e Without transferring consideration, including by contract alone (see paragraph [805-10-25-11](https://asc.understandingaccounting.org/asc/805/10/#805-10-25-11)). ##### [805-10-55-3](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:29aa6b139e33db618d036333f465ef798288f3213ee96cbccecf78790ffac087 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A business combination may be structured in a variety of ways for legal, taxation, or other reasons, which include but are not limited to, the following: 1. a One or more businesses become subsidiaries of an acquirer or the net assets of one or more businesses are legally merged into the acquirer. 2. b One combining entity transfers its net assets or its [owners](https://asc.understandingaccounting.org/glossary/o/#owners "Used broadly to include holders of ownership interests (equity interests) of investor-owned entities, mutual entities, or not-for-profit entities. Owners include shareholders, partners, proprietors, or members or participants of mutual entities. Owners also include owner and member interests in the net assets of not-for-profit entities.") transfer their equity interests to another combining entity or its owners. 3. c All of the combining entities transfer their net assets or the owners of those entities transfer their equity interests to a newly formed entity (sometimes referred to as a roll-up or put-together transaction). 4. d A group of former owners of one of the combining entities obtains control of the combined entity. ##### [805-10-55-3A](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-3A) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:cd331b1e5aa0d113064de1d377a205b911d8619e4815e6b11ab8466807a9dcf7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A business is an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs, or other economic benefits directly to investors or other owners, members, or participants. To be considered a business, an integrated set must meet the requirements in paragraphs [805-10-55-4 through 55-6](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-4) and [805-10-55-8 through 55-9](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-8) . ##### [805-10-55-4](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:a02ac3d939010aa2737b2902aac8313b603f1911b6f27b494fa8ac18c8d30be4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A business consists of inputs and processes applied to those inputs that have the ability to contribute to the creation of outputs. Although businesses usually have outputs, outputs are not required for an integrated set to qualify as a business. The three elements of a business are defined as follows: 1. a Input. Any economic resource that creates, or has the ability to contribute to the creation of, outputs when one or more processes are applied to it. Examples include long-lived assets (including [intangible assets](https://asc.understandingaccounting.org/glossary/i/#intangible-assets "Assets (not including financial assets) that lack physical substance. (The term intangible assets is used to refer to intangible assets other than goodwill.)") or rights to use long-lived assets), intellectual property, the ability to obtain access to necessary materials or rights, and employees. 2. b Process. Any system, standard, protocol, convention, or rule that when applied to an input or inputs, creates or has the ability to contribute to the creation of outputs. Examples include strategic management processes, operational processes, and resource management processes. These processes typically are documented, but the intellectual capacity of an organized workforce having the necessary skills and experience following rules and conventions may provide the necessary processes that are capable of being applied to inputs to create outputs. Accounting, billing, payroll, and other administrative systems typically are not processes used to create outputs. 3. c Output. The result of inputs and processes applied to those inputs that provide goods or services to customers, investment income (such as dividends or interest), or other revenues. ##### [805-10-55-5](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:e2d93083aabb03a0a42401eb3b692bb0557fc27dcdf5db6da437feb3d8889db7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. To be capable of being conducted and managed for the purposes described in paragraph [805-10-55-3A](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-3A), an integrated set of activities and assets requires two essential elements—inputs and processes applied to those inputs. A business need not include all the inputs or processes that the seller used in operating that business. However, to be considered a business, the set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output. Paragraphs [805-10-55-5A through 55-5C](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5A) provide a practical screen to determine when a set would not be considered a business. If the screen is not met, further assessment is necessary to determine whether the set is a business. Paragraphs [805-10-55-5D through 55-6](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5D) and [805-10-55-8 through 55-9](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-8) provide a framework to assist an entity in evaluating whether the set includes both an input and a substantive process. ##### [805-10-55-5A](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5A) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:5120d7164d0281983a8c615ba5e176a734ad08a0fada35203dcaf898643bf22b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not considered a business. Gross assets acquired should exclude cash and cash equivalents, deferred tax assets, and goodwill resulting from the effects of deferred tax liabilities. However, the gross assets acquired should include any consideration transferred (plus the fair value of any noncontrolling interest and previously held interest, if any) in excess of the fair value of net identifiable assets acquired. ##### [805-10-55-5B](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5B) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:0ba4375ddf4152487b256fa6b158357172493489187b04795dc840fbca112370 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A single identifiable asset includes any individual asset or group of assets that could be recognized and measured as a single identifiable asset in a business combination. However, for purposes of this evaluation, the following should be considered a single asset: 1. a A tangible asset that is attached to and cannot be physically removed and used separately from another tangible asset (or an intangible asset representing the right to use a tangible asset) without incurring significant cost or significant diminution in utility or fair value to either asset (for example, land and building) 2. b In-place lease intangibles, including favorable and unfavorable intangible assets or liabilities, and the related leased assets. ##### [805-10-55-5C](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5C) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:d7d10425bdc330b24344d3d748995460caaeb356af1ac12192373b73a7290cbd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A group of similar assets includes multiple assets identified in accordance with paragraph [805-10-55-5B](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5B). When evaluating whether assets are similar, an entity should consider the nature of each single identifiable asset and the risks associated with managing and creating outputs from the assets (that is, the risk characteristics). However, the following should not be considered similar assets: 1. a A tangible asset and an intangible asset 2. b Identifiable intangible assets in different major [intangible asset classes](https://asc.understandingaccounting.org/glossary/i/#intangible-asset-class "A group of intangible assets that are similar, either by their nature or by their use in the operations of an entity.") (for example, customer-related intangibles, trademarks, and in-process research and development) 3. c A financial asset and a nonfinancial asset 4. d Different major classes of financial assets (for example, accounts receivable and marketable securities) 5. e Different major classes of tangible assets (for example, inventory, manufacturing equipment, and automobiles) 6. f Identifiable assets within the same major asset class that have significantly different risk characteristics. ##### [805-10-55-5D](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5D) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:ac2658a0f433d6382ac57cffa60df3fe7b990bc967d3f936e199767b676a95c6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. When a set does not have outputs (for example, an early stage company that has not generated revenues), the set will have both an input and a substantive process that together significantly contribute to the ability to create outputs only if it includes employees that form an organized workforce and an input that the workforce could develop or convert into output. The organized workforce must have the necessary skills, knowledge, or experience to perform an acquired process (or group of processes) that when applied to another acquired input or inputs is critical to the ability to develop or convert that acquired input or inputs into outputs. An entity should consider the following in evaluating whether the acquired workforce is performing a substantive process: 1. a A process (or group of processes) is not critical if, for example, it is considered ancillary or minor in the context of all the processes required to create outputs. 2. b Inputs that employees who form an organized workforce could develop (or are developing) or convert into outputs could include the following: 1. 1 Intellectual property that could be used to develop a good or service 2. 2 Resources that could be developed to create outputs 3. 3 Access to necessary materials or rights that enable the creation of future outputs. Examples of inputs that could be developed include technology, mineral interests, real estate, and in-process research and development. ##### [805-10-55-5E](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5E) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:20ce50eb3272fa30d86e409dfccd11cf5ef87e2ec2d4062decd1125470c78870 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. When the set has outputs (that is, there is a continuation of revenue before and after the transaction), the set will have both an input and a substantive process that together significantly contribute to the ability to create outputs when any of the following are present: 1. a Employees that form an organized workforce that has the necessary skills, knowledge, or experience to perform an acquired process (or group of processes) that when applied to an acquired input or inputs is critical to the ability to continue producing outputs. A process (or group of processes) is not critical if, for example, it is considered ancillary or minor in the context of all of the processes required to continue producing outputs. 2. b An acquired contract that provides access to an organized workforce that has the necessary skills, knowledge, or experience to perform an acquired process (or group of processes) that when applied to an acquired input or inputs is critical to the ability to continue producing outputs. An entity should assess the substance of an acquired contract and whether it has effectively acquired an organized workforce that performs a substantive process (for example, considering the duration and the renewal terms of the contract). 3. c The acquired process (or group of processes) when applied to an acquired input or inputs significantly contributes to the ability to continue producing outputs and cannot be replaced without significant cost, effort, or delay in the ability to continue producing outputs. 4. d The acquired process (or group of processes) when applied to an acquired input or inputs significantly contributes to the ability to continue producing outputs and is considered unique or scarce. ##### [805-10-55-5F](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5F) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:dba0f0ee0de483eca083652fdd585188a4e94a9cee2f1e8da8bca0c43fc9806c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a set has outputs, continuation of revenues does not on its own indicate that both an input and a substantive process have been acquired. Accordingly, assumed contractual arrangements that provide for the continuation of revenues (for example, customer contracts, customer lists, and leases \[when the set is the lessor\]) should be excluded from the analysis in paragraph [805-10-55-5E](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5E) of whether a process has been acquired. ##### [805-10-55-6](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-6) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:5218f6e327e827036e1dd90869acb6727edd052b6fc94284fb20acb77756f94c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The nature of the elements of a business varies by industry and by the structure of an entity's operations (activities), including the entity's stage of development. Established businesses often have many different types of inputs, processes, and outputs, whereas new businesses often have few inputs and processes and sometimes only a single output (product). Nearly all businesses also have liabilities, but a business need not have liabilities. In addition, some transferred sets of assets and activities that are not a business may have liabilities. ##### [805-10-55-7](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-7) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:7864691d17a2725b8bd78ea7f2e62d0ee2a867ed356004a2df91fb22a445397b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2017-01](https://asc.understandingaccounting.org/updates/asu-2017-01/). ##### [805-10-55-8](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-8) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:8b7bc111245e82aea5ac28bb17aad9be89e20d7560ae986be72d114bc1c41b71 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Determining whether a particular set of assets and activities is a business should be based on whether the integrated set is capable of being conducted and managed as a business by a [market participant](https://asc.understandingaccounting.org/glossary/m/#market-participants "Buyers and sellers in the principal (or most advantageous) market for the asset or liability that have all of the following characteristics: They are independent of each other, that is, they are not related parties, although the price in a related-party transaction may be used as an input to a fair value measurement if the reporting entity has evidence that the transaction was entered into at market terms They are knowledgeable, having a reasonable understanding about the asset or liability and the transaction using all available information, including information that might be obtained through due diligence efforts that are usual and customary They are able to enter into a transaction for the asset or liability They are willing to enter into a transaction for the asset or liability, that is, they are motivated but not forced or otherwise compelled to do so."). Thus, in evaluating whether a particular set is a business, it is not relevant whether a seller operated the set as a business or whether the acquirer intends to operate the set as a business. ##### [805-10-55-9](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-9) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:3f98e481ab53445059945d1e1a1b9c84e3b7d06d662febb16786bac5f9616434 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. When evaluating whether a set meets the criteria in paragraphs [805-10-55-5D through 55-5E](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5D) , the presence of more than an insignificant amount 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.") may be an indicator that the acquired process is substantive and, therefore, the acquired set is a business. However, a business need not have goodwill. ##### [805-10-55-10](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-10) Pending content: yes Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:d60d8c73e7e4b3b4c4059921eb280a29a47d2f36846235dce3a7c6238c406c8b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [805-10-25-5](https://asc.understandingaccounting.org/asc/805/10/#805-10-25-5) provides that the guidance in the General Subsections of Subtopic 810-10 related to determining the existence of a controlling financial interest should be used to identify the acquirer in a business combination, except when a variable interest entity (VIE) is acquired. If a business combination has occurred but applying that guidance does not clearly indicate which of the combining entities is the acquirer, paragraph [805-10-25-5](https://asc.understandingaccounting.org/asc/805/10/#805-10-25-5) requires the factors in paragraphs [805-10-55-11 through 55-15](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-11) to be considered in making that determination. Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance: [805-10-65-5](https://asc.understandingaccounting.org/asc/805/10/#805-10-65-5) Paragraph [805-10-25-5](https://asc.understandingaccounting.org/asc/805/10/#805-10-25-5) provides that the guidance in the General Subsections of Subtopic 810-10 related to determining the existence of a controlling financial interest should be used to identify the acquirer in a business combination, except when a [variable interest entity](https://asc.understandingaccounting.org/glossary/v/#variable-interest-entity "A legal entity subject to consolidation according to the provisions of the Variable Interest Entities Subsections of Subtopic 810-10.") (VIE) is acquired. If a business combination has occurred but applying that guidance does not clearly indicate which of the combining entities is the acquirer, paragraph [805-10-25-5](https://asc.understandingaccounting.org/asc/805/10/#805-10-25-5) requires the factors in paragraphs [805-10-55-11 through 55-15](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-11) to be considered in making that determination.For a business combination that is effected primarily by exchanging equity interests in which a VIE is acquired, the factors in paragraphs [805-10-55-12 through 55-15](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-12) shall be considered in determining which entity is the accounting acquirer. For a business combination that is not effected primarily by exchanging equity interests in which a VIE is acquired, the [primary beneficiary](https://asc.understandingaccounting.org/glossary/p/#primary-beneficiary "An entity that consolidates a variable interest entity (VIE). See paragraphs 810-10-25-38 through 25-38J for guidance on determining the primary beneficiary.") of that entity is the accounting acquirer. ##### [805-10-55-11](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-11) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:4577a14079a3e880fd5cd7c93b4d6dbe970a704d412b5e85f91ba70814e3bd4e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In a business combination effected primarily by transferring cash or other assets or by incurring liabilities, the acquirer usually is the entity that transfers the cash or other assets or incurs the liabilities. ##### [805-10-55-12](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-12) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:8e81fe03507f795a1d49a97d06f784d0352d8fb171a0c6d67be6f394d16e97b2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In a business combination effected primarily by exchanging equity interests, the acquirer usually is the entity that issues its equity interests. However, in some business combinations, commonly called [reverse acquisitions](https://asc.understandingaccounting.org/glossary/r/#reverse-acquisition "An acquisition in which the entity that issues securities (the legal acquirer) is identified as the acquiree for accounting purposes based on the guidance in paragraphs 805-10-55-11805-10-55-12805-10-55-13805-10-55-14805-10-55-15. The entity whose equity interests are acquired (the legal acquiree) must be the acquirer for accounting purposes for the transaction to be considered a reverse acquisition."), the issuing entity is the acquiree. Subtopic 805-40 provides guidance on accounting for reverse acquisitions. Other pertinent facts and circumstances also shall be considered in identifying the acquirer in a business combination effected by exchanging equity interests, including the following: 1. a The relative voting rights in the combined entity after the business combination. The acquirer usually is the combining entity whose owners as a group retain or receive the largest portion of the voting rights in the combined entity. In determining which group of owners retains or receives the largest portion of the voting rights, an entity shall consider the existence of any unusual or special voting arrangements and options, warrants, or convertible securities. 2. b The existence of a large minority voting interest in the combined entity if no other owner or organized group of owners has a significant voting interest. The acquirer usually is the combining entity whose single owner or organized group of owners holds the largest minority voting interest in the combined entity. 3. c The composition of the governing body of the combined entity. The acquirer usually is the combining entity whose owners have the ability to elect or appoint or to remove a majority of the members of the governing body of the combined entity. 4. d The composition of the senior management of the combined entity. The acquirer usually is the combining entity whose former management dominates the management of the combined entity. 5. e The terms of the exchange of equity interests. The acquirer usually is the combining entity that pays a premium over the precombination [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.") of the equity interests of the other combining entity or entities. ##### [805-10-55-13](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-13) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:e99db5c2e8649e62b0beb4356e2e18e556c12114de602b6120f962e7d53720d0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The acquirer usually is the combining entity whose relative size (measured in, for example, assets, revenues, or earnings) is significantly larger than that of the other combining entity or entities. ##### [805-10-55-14](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-14) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:fbc1958cfa617998a37bcf77759401cad6650325bec60e2cbf1edc62e7d5a215 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In a business combination involving more than two entities, determining the acquirer shall include a consideration of, among other things, which of the combining entities initiated the combination, as well as the relative size of the combining entities, as discussed in paragraph [805-10-55-13](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-13). ##### [805-10-55-15](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-15) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:ce108665179623d090706f1410b94d7d9dc69f432379f7f9c8604b91ae1e70ff Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A new entity formed to effect a business combination is not necessarily the acquirer. If a new entity is formed to issue equity interests to effect a business combination, one of the combining entities that existed before the business combination shall be identified as the acquirer by applying the guidance in paragraphs [805-10-55-10 through 55-14](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-10) . In contrast, a new entity that transfers cash or other assets or incurs liabilities as consideration may be the acquirer. ##### [805-10-55-16](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-16) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:0c03d79f9693f17468cd3768aa2dc0352028788ff40db5ad163f926b74adb3de Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraphs [805-10-25-14 through 25-19](https://asc.understandingaccounting.org/asc/805/10/#805-10-25-14) and [805-10-30-2 through 30-3](https://asc.understandingaccounting.org/asc/805/10/#805-10-30-2) discuss requirements related to the measurement period in a business combination. If the initial accounting for a business combination is incomplete at the end of the financial reporting period in which the combination occurs, paragraph [805-10-25-13](https://asc.understandingaccounting.org/asc/805/10/#805-10-25-13) requires that the acquirer recognize in its financial statements provisional amounts for the items for which the accounting is incomplete. During the measurement period, the acquirer recognizes adjustments to the provisional amounts needed to reflect new information obtained about facts and circumstances that existed as of the [acquisition date](https://asc.understandingaccounting.org/glossary/a/#acquisition-date "The date on which the acquirer obtains control of the acquiree.") that, if known, would have affected the measurement of the amounts recognized as of that date. Paragraph [805-10-25-17](https://asc.understandingaccounting.org/asc/805/10/#805-10-25-17) requires the acquirer to recognize such adjustments with a corresponding adjustment to goodwill in the reporting period the adjustments are determined. The effects of adjustments to provisional amounts to periods after the acquisition date are included in the earnings of the adjustment period. ##### [805-10-55-17](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-17) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:cd7262089a146484d5ca3554a72cde0ef783eb101257d9d6fdaa24e4e610758c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Example 1 (see paragraph [805-10-55-27](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-27)) illustrates measurement period guidance. ##### [805-10-55-18](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-18) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:0086dd4ed089d525a1cf0695bf1cdf08d99836ac4cd57db798478dc1921e7084 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraphs [805-10-25-20 through 25-22](https://asc.understandingaccounting.org/asc/805/10/#805-10-25-20) establish the requirements to identify amounts that are not part of the business combination. The acquirer should consider the following factors, which are neither mutually exclusive nor individually conclusive, to determine whether a transaction is part of the exchange for the acquiree or whether the transaction is separate from the business combination: 1. a The reasons for the transaction. Understanding the reasons why the parties to the combination (the acquirer, the acquiree, and their owners, directors, managers, and their agents) entered into a particular transaction or arrangement may provide insight into whether it is part of the consideration transferred and the assets acquired or liabilities assumed. For example, if a transaction is arranged 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, that portion of the transaction price paid (and any related assets or liabilities) is less likely to be part of the exchange for the acquiree. Accordingly, the acquirer would account for that portion separately from the business combination. 2. b Who initiated the transaction. Understanding who initiated the transaction may also provide insight into whether it is part of the exchange for the acquiree. For example, a transaction or other event that is initiated by the acquirer may be entered into for the purpose of providing future economic benefits to the acquirer or combined entity with little or no benefit received by the acquiree or its former owners before the combination. On the other hand, a transaction or arrangement initiated by the acquiree or its former owners is less likely to be for the benefit of the acquirer or the combined entity and more likely to be part of the business combination transaction. 3. c The timing of the transaction. The timing of the transaction may also provide insight into whether it is part of the exchange for the acquiree. For example, a transaction between the acquirer and the acquiree that takes place during the negotiations of the terms of a business combination may have been entered into in contemplation of the business combination to provide future economic benefits to the acquirer or the combined entity. If so, the acquiree or its former owners before the business combination are likely to receive little or no benefit from the transaction except for benefits they receive as part of the combined entity. ##### [805-10-55-19](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-19) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:5c62786aedb7d92f3053b164111fe96248000684e5dc36455df2020f91990f72 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following guidance addresses specific transactions referred to in paragraph [805-10-25-21](https://asc.understandingaccounting.org/asc/805/10/#805-10-25-21) that are not to be included in applying the acquisition method: 1. a Effective settlement of a preexisting relationship between the acquirer and acquiree in a business combination 2. b Arrangements for contingent payments to employees or selling shareholders. ##### [805-10-55-20](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-20) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:6f6c9155e1b09135ebfb1640e01db157bd0c589d5eb9445231ac141cd883af90 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The acquirer and acquiree may have a relationship that existed before they contemplated the business combination, referred to here as a preexisting relationship. A preexisting relationship between the acquirer and acquiree may be contractual (for example, vendor and customer or licensor and licensee) or noncontractual (for example, plaintiff and defendant). ##### [805-10-55-21](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-21) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:80d9c712604716ddee3a9569dc3a31a1223d2cf59e6873fb6944b6a7a896e3bc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the business combination in effect settles a preexisting relationship, the acquirer recognizes a gain or loss, measured as follows: 1. a For a preexisting noncontractual relationship, such as a lawsuit, fair value 2. b For a preexisting contractual relationship, the lesser of the following: 1. 1 The amount by which the contract is favorable or unfavorable from the perspective of the acquirer when compared with pricing for current market transactions for the same or similar items. An unfavorable contract is a contract that is unfavorable in terms of current market terms. It is not necessarily a loss contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. 2. 2 The amount of any stated settlement provisions in the contract available to the counterparty to whom the contract is unfavorable. If this amount is less than the amount in (b)(1), the difference is included as part of the business combination accounting. ##### [805-10-55-22](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-22) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:2cec1cb223fbea05935d8646f86968a1623c543d181e61b513b80d7fa351ed26 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Examples 2 and 3 (see paragraphs [805-10-55-30 through 55-33](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-30) ) illustrate the accounting for the effective settlement of a preexisting relationship as a result of a business combination. As indicated in Example 3 (see paragraph [805-10-55-33](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-33)), the amount of gain or loss recognized may depend in part on whether the acquirer had previously recognized a related asset or liability, and the reported gain or loss therefore may differ from the amount calculated by applying paragraph [805-10-55-21](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-21). ##### [805-10-55-23](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-23) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:9c1f688afaedf79f3908c43332493b441cb9c6498031cb18e77f7961b74fdc26 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A preexisting relationship may be a contract that the acquirer recognizes as a reacquired right in accordance with paragraph [805-20-25-14](https://asc.understandingaccounting.org/asc/805/20/#805-20-25-14). If the contract includes terms that are favorable or unfavorable when compared with pricing for current market transactions for the same or similar items, the acquirer recognizes, separately from the business combination, a gain or loss for the effective settlement of the contract, measured in accordance with paragraph [805-10-55-21](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-21). ##### [805-10-55-24](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-24) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:3b6c1e4c57de13762e30a68428b18dfc374cbaffb18b58c7dafc236d14b4836e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Whether arrangements for contingent payments to employees or selling shareholders are [contingent consideration](https://asc.understandingaccounting.org/glossary/c/#contingent-consideration "Usually an obligation of the acquirer to transfer additional assets or equity interests to the former owners of an acquiree as part of the exchange for control of the acquiree if specified future events occur or conditions are met. However, contingent consideration also may give the acquirer the right to the return of previously transferred consideration if specified conditions are met.") in the business combination or are separate transactions depends on the nature of the arrangements. Understanding the reasons why the acquisition agreement includes a provision for contingent payments, who initiated the arrangement, and when the parties entered into the arrangement may be helpful in assessing the nature of the arrangement. ##### [805-10-55-25](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-25) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:b08f915dea7f863f92648513abaa8af700411c6572dc3acf31c6daf7c885e1d6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If it is not clear whether an arrangement for payments to employees or selling shareholders is part of the exchange for the acquiree or is a transaction separate from the business combination, the acquirer should consider the following indicators: 1. a Continuing employment. The terms of continuing employment by the selling shareholders who become key employees may be an indicator of the substance of a contingent consideration arrangement. The relevant terms of continuing employment may be included in an employment agreement, acquisition agreement, or some other document. A contingent consideration arrangement in which the payments are automatically forfeited if employment terminates is compensation for postcombination services. Arrangements in which the contingent payments are not affected by employment termination may indicate that the contingent payments are additional consideration rather than compensation. 2. b Duration of continuing employment. If the period of required employment coincides with or is longer than the contingent payment period, that fact may indicate that the contingent payments are, in substance, compensation. 3. c Level of compensation. Situations in which employee compensation other than the contingent payments is at a reasonable level in comparison to that of other key employees in the combined entity may indicate that the contingent payments are additional consideration rather than compensation. 4. d Incremental payments to employees. If selling shareholders who do not become employees receive lower contingent payments on a per-share basis than the selling shareholders who become employees of the combined entity, that fact may indicate that the incremental amount of contingent payments to the selling shareholders who become employees is compensation. 5. e Number of shares owned. The relative number of shares owned by the selling shareholders who remain as key employees may be an indicator of the substance of the contingent consideration arrangement. For example, if the selling shareholders who owned substantially all of the shares in the acquiree continue as key employees, that fact may indicate that the arrangement is, in substance, a profit-sharing arrangement intended to provide compensation for postcombination services. Alternatively, if selling shareholders who continue as key employees owned only a small number of shares of the acquiree and all selling shareholders receive the same amount of contingent consideration on a per-share basis, that fact may indicate that the contingent payments are additional consideration. The preacquisition ownership interests held by parties related to selling shareholders who continue as key employees, such as family members, also should be considered. 6. f Linkage to the valuation. If the initial consideration transferred at the acquisition date is based on the low end of a range established in the valuation of the acquiree and the contingent formula relates to that valuation approach, that fact may suggest that the contingent payments are additional consideration. Alternatively, if the contingent payment formula is consistent with prior profit-sharing arrangements, that fact may suggest that the substance of the arrangement is to provide compensation. 7. g Formula for determining consideration. The formula used to determine the contingent payment may be helpful in assessing the substance of the arrangement. For example, if a contingent payment is determined on the basis of a multiple of earnings, that might suggest that the obligation is contingent consideration in the business combination and that the formula is intended to establish or verify the fair value of the acquiree. In contrast, a contingent payment that is a specified percentage of earnings might suggest that the obligation to employees is a profit-sharing arrangement to compensate employees for services rendered. 8. h Other agreements and issues. The terms of other arrangements with selling shareholders (such as noncompete agreements, executory contracts, consulting contracts, and property lease agreements) and the income tax treatment of contingent payments may indicate that contingent payments are attributable to something other than consideration for the acquiree. For example, in connection with the acquisition, the acquirer might enter into a property lease arrangement with a significant selling shareholder. If the lease payments specified in the lease contract are significantly below market, some or all of the contingent payments to the lessor (the selling shareholder) required by a separate arrangement for contingent payments might be, in substance, payments for the use of the leased property that the acquirer should recognize separately in its postcombination financial statements. In contrast, if the lease contract specifies lease payments that are consistent with market terms for the leased property, the arrangement for contingent payments to the selling shareholder may be contingent consideration in the business combination. ##### [805-10-55-26](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-26) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:51e43078d145471d53a0f4c2ad07dbcb9b2d1f3511359c9f434f45ea1aa9b89b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Example 4 (see paragraph [805-10-55-34](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-34)) illustrates guidance relating to contingent payments made to an employee in a business combination. #### Illustrations ##### [805-10-55-27](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-27) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:ff497d703572e1b117bb3c135f44c292f286aedf32fe336868e4f5a225183ba7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the measurement period guidance in paragraph [805-10-55-16](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-16). Acquirer acquires Target on September 30, 20X7. Acquirer seeks an independent appraisal for an item of property, plant, and equipment acquired in the combination, and the appraisal was not complete by the time Acquirer issued its financial statements for the year ended December 31, 20X7. In its 20X7 annual financial statements, Acquirer recognized a provisional fair value for the asset of $30,000. At the acquisition date, the item of property, plant, and equipment had a remaining useful life of five years. Six months after the acquisition date, Acquirer received the independent appraisal, which estimated the asset's acquisition-date fair value as $40,000. ##### [805-10-55-28](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-28) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:79357b39c56a7800a6bdc55de4035541cf061b26032c0917b9fbf3dd71fac8bf Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In its interim financial statements for the quarter ended March 31, 20X8, Acquirer adjusts the provisional amounts recorded and the related effects on that period's earnings as follows: 1. a The carrying amount of property, plant, and equipment as of March 31, 20X8, is increased by $9,000. That adjustment is measured as the fair value adjustment at the acquisition date of $10,000 less the additional depreciation that would have been recognized had the asset's fair value at the acquisition date been recognized from that date ($1,000 for 6 months' depreciation). 2. b The carrying amount of goodwill as of March 31, 20X8, is decreased by $10,000. 3. c Depreciation expense for the period ended March 31, 20X8, is increased by $1,000 to reflect the effect on earnings as a result of the change to the provisional amount recognized. ##### [805-10-55-29](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-29) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:69c64eaeca545b0a0e20389a205fd5f49875925701c83664a32c6171f494cdf9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In accordance with paragraph [805-20-50-4A](https://asc.understandingaccounting.org/asc/805/20/#805-20-50-4A), Acquirer discloses both of the following: 1. a In its 20X7 financial statements, that the initial accounting for the business combination has not been completed because the appraisal of property, plant, and equipment has not yet been received 2. b In its March 31, 20X8 financial statements, the amounts and explanations of the adjustments to the provisional values recognized during the current reporting period. Therefore, Acquirer discloses that the increase to the fair value of the item of property, plant, and equipment was $10,000, with a corresponding decrease to goodwill. Additionally, the change to the provisional amount resulted in an increase in depreciation expense and accumulated depreciation of $1,000, of which $500 relates to the previous quarter. ##### [805-10-55-30](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-30) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:ef5c6858bdd597e23bb3b7490297bfde2cca70c7051e0cfa20e8f353360cabab Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the guidance in paragraphs [805-10-55-20 through 55-21](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-20) . Acquirer purchases electronic components from Target under a five-year supply contract at fixed rates. Currently, the fixed rates are higher than rates at which Acquirer could purchase similar electronic components from another supplier. The supply contract allows Acquirer to terminate the contract before the end of the initial 5-year term only by paying a $6 million penalty. With 3 years remaining under the supply contract, Acquirer pays $50 million to acquire Target, which is the fair value of Target based on what other market participants would be willing to pay. ##### [805-10-55-31](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-31) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:1c833e8fe61de14d963cd602576f552bfe7ace07da821eda4d9cd09667840b0b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Included in the total fair value of Target is $8 million related to the fair value of the supply contract with Acquirer. The $8 million represents a $3 million component that is at-market because the pricing is comparable to pricing for current market transactions for the same or similar items (selling effort, customer relationships, and so forth) and a $5 million component for pricing that is unfavorable to Acquirer because it exceeds the price of current market transactions for similar items. Target has no other [identifiable](https://asc.understandingaccounting.org/glossary/i/#identifiable "An asset is identifiable if it meets either of the following criteria: It is separable, that is, capable of being separated or divided from the entity and sold, transferred, licensed, rented, or exchanged, either individually or together with a related contract, identifiable asset, or liability, regardless of whether the entity intends to do so. It arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations.") assets or liabilities related to the supply contract, and Acquirer has not recognized any assets or liabilities related to the supply contract before the business combination. ##### [805-10-55-32](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-32) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:bcddfa8910e63efecc778e3e7e9b608309f0699311f2b8f729d9b061ae6cd82a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In this Example, Acquirer recognizes a loss of $5 million (the lesser of the $6 million stated settlement amount and the amount by which the contract is unfavorable to the acquirer) separately from the business combination. The $3 million at-market component of the contract is part of goodwill. ##### [805-10-55-33](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-33) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:dc16ecf6726c4ec72bbd05e0e173e10fa8172d6334c53372372d8820aa7cfb42 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the guidance in paragraphs [805-10-55-20 through 55-21](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-20) . Whether Acquirer had previously recognized an amount in its financial statements related to a preexisting relationship will affect the amount recognized as a gain or loss for the effective settlement of the relationship. In Example 2 (see paragraph [805-10-55-30](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-30)), generally accepted accounting principles (GAAP) might have required Acquirer to recognize a $6 million liability for the supply contract before the business combination. In that situation, Acquirer recognizes a $1 million settlement gain on the contract in earnings at the acquisition date (the $5 million measured loss on the contract less the $6 million loss previously recognized). In other words, Acquirer has in effect settled a recognized liability of $6 million for $5 million, resulting in a gain of $1 million. ##### [805-10-55-34](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-34) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:ba0f26c1b094629d92b61ebea67e8d7191e800559c20ebacc7dc98cca4cff5ea Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the guidance in paragraphs [805-10-55-24 through 55-25](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-24) relating to contingent payments to employees in a business combination. Target hired a candidate as its new chief executive officer under a 10-year contract. The contract required Target to pay the candidate $5 million if Target is acquired before the contract expires. Acquirer acquires Target eight years later. The chief executive officer was still employed at the acquisition date and will receive the additional payment under the existing contract. ##### [805-10-55-35](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-35) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:91c18127886d6037fdc19cc49d4c6a9f9258ab9796731eedf2ae417312c4a9fb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In this Example, Target entered into the employment agreement before the negotiations of the combination began, and the purpose of the agreement was to obtain the services of the chief executive officer. Thus, there is no evidence that the agreement was arranged primarily to provide benefits to Acquirer or the combined entity. Therefore, the liability to pay $5 million is included in the application of the acquisition method. ##### [805-10-55-36](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-36) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:a9527bd654ee5afe07cd5276baccb69ae7cea98b59df51c68b77a7e2b3aeda7f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In other circumstances, Target might enter into a similar agreement with the chief executive officer at the suggestion of Acquirer during the negotiations for the business combination. If so, the primary purpose of the agreement might be to provide severance pay to the chief executive officer, and the agreement may primarily benefit Acquirer or the combined entity rather than Target or its former owners. In that situation, Acquirer accounts for the liability to pay the chief executive officer in its postcombination financial statements separately from application of the acquisition method. ##### [805-10-55-37](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-37) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:b633ad35cecd0de6699e7b3ba7462fd200eac61e6e17629431893de98950ee12 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates some of the disclosure requirements established in the several Subtopics of this Topic; it is not based on an actual transaction. The Example assumes that Acquirer is a public entity and that Target is a private entity. The illustration presents the disclosures in a tabular format that refers to the specific disclosure requirements illustrated. An actual note to financial statements might present many of the disclosures illustrated in a simple narrative format. ##### [805-10-55-38](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-38) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:dd1c6ed5356153b4e3d9bf39c1f2800478b2138d9140bf724f8bc684359b1b06 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [805-10-50-2(a) through (d)](https://asc.understandingaccounting.org/asc/805/10/#805-10-50-2) - On June 30, 20X0, Acquirer acquired 15 percent of the outstanding common shares of Target. On June 30, 20X2, Acquirer acquired 60 percent of the outstanding common shares of Target. Target is a provider of data networking products and services in Canada and Mexico. As a result of the acquisition, Acquirer is expected to be the leading provider of data networking products and services in those markets. It also expects to reduce costs through economies of scale. ##### [805-10-55-39](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-39) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:45c5c7299c4862ccb9df25137a9a0ddc65a952464391c03b814fa60415535839 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [805-30-50-1(a)](https://asc.understandingaccounting.org/asc/805/30/#805-30-50-1) and [805-30-50-1(e)](https://asc.understandingaccounting.org/asc/805/30/#805-30-50-1) - The goodwill of $2,500 arising from the acquisition consists largely of the synergies and economies of scale expected from combining the operations of Acquirer and Target. All of the goodwill was assigned to Acquirer's network segment. ##### [805-10-55-40](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-40) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:a8d7b09374dbd67206cba278a33a7800a267769cf48e010a1d785193bd022286 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [805-30-50-1(d)](https://asc.understandingaccounting.org/asc/805/30/#805-30-50-1) - None of the goodwill recognized is expected to be deductible for income tax purposes. ##### [805-10-55-41](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-41) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:5720d2d8ca6680865444204ef127c907bee95b1297e975aaa24d0271dd73ac8e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraphs [805-10-50-2](https://asc.understandingaccounting.org/asc/805/10/#805-10-50-2), [805-20-50-1](https://asc.understandingaccounting.org/asc/805/20/#805-20-50-1), and [805-30-50-1](https://asc.understandingaccounting.org/asc/805/30/#805-30-50-1) - The following table summarizes the consideration paid for Target and the amounts of the assets acquired and liabilities assumed recognized at the acquisition date, as well as the fair value at the acquisition date of the [noncontrolling interest](https://asc.understandingaccounting.org/glossary/n/#noncontrolling-interest "The portion of equity (net assets) in a subsidiary not attributable, directly or indirectly, to a parent. A noncontrolling interest is sometimes called a minority interest.") in Target. - At June 30, 20X2 - ![](https://asc.understandingaccounting.org/asc-img/GUID-184F6F82-5E3F-49F5-872D-97588ABA431F-low.gif) Refer to Paragraph(s) $ 805-30-50-1(b) Consideration 805-30-50-1(b)(1) Cash " 5,000 " 805-30-50-1(b)(4) "Equity instruments (100,000 common shares of Acquirer)" " 4,000 " " 805-30-50-1(b)(3), 805-30-50-1(c)(1)" Contingent consideration arrangement " 1,000 " Fair value of total consideration transferred " 10,000 " 805-10-50-2(g)(1) Fair value of Acquirer's equity interest in Target held before the business combination " 2,000 " " 12,000 " "805-10-50-2(e), 805-10-50-2(f)" "Acquisition-related costs (including in selling, general, and administrative expenses in Acquirer's income statement for the year ending December 31, 20X2)" " 1,250 " 805-20-50-1(c) Recognized amounts of identifiable assets acquired and liabilities assumed Financial assets " 3,500 " Inventory " 1,000 " "Property, plant, and equipment" " 10,000 " Identifiable intangible assets " 3,300 " Financial liabilities " (4,000)" Liability arising from a contingency " (1,000)" Total identifiable net assets " 12,800 " 805-20-50-1(e)(1) Noncontrolling interest in Target " (3,300)" Goodwill " 2,500 " " 12,000 " ##### [805-10-55-42](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-42) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:02888dc462ec033d8c4caaa143ec843288b536c9913cd49022058e3ddc423c46 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [805-30-50-1(b)(4)](https://asc.understandingaccounting.org/asc/805/30/#805-30-50-1) - The fair value of the 100,000 common shares issued as part of the consideration paid for Target ($4,000) was determined on the basis of the closing market price of Acquirer's common shares on the acquisition date. ##### [805-10-55-43](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-43) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:88914d7a0f2a4ad20ecf878b723486015c71aa0275bba17aa8e3cc0d6b426797 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [805-30-50-1(b)(3)](https://asc.understandingaccounting.org/asc/805/30/#805-30-50-1) and [805-30-50-1(c)](https://asc.understandingaccounting.org/asc/805/30/#805-30-50-1), and paragraph [805-30-50-4(a)](https://asc.understandingaccounting.org/asc/805/30/#805-30-50-4) - The contingent consideration arrangement requires Acquirer to pay the former owners of Target 5 percent of the revenues of an unconsolidated equity investment, referred to as Investee, owned by Target, in excess of $7,500 for 20X3, up to a maximum amount of $2,500 (undiscounted). The potential undiscounted amount of all future payments that Acquirer could be required to make under the contingent consideration arrangement is between $0 and $2,500. The fair value of the contingent consideration arrangement of $1,000 was estimated by applying the income approach. That measure is based on significant inputs that are not observable in the market, which Section 820-10-35 refers to as Level 3 inputs. Key assumptions include a discount rate range of 20 percent to 25 percent and a probability-adjusted level of revenues in Investee between $10,000 and $20,000. As of December 31, 20X2, the amount recognized for the contingent consideration arrangement, the range of outcomes, and the assumptions used to develop the estimates had not changed. ##### [805-10-55-44](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-44) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:93fd8dd43376b9ba5d642cc25a98f05b28716efb722bf746cee4ca1df0270b4e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [805-20-50-1(b)](https://asc.understandingaccounting.org/asc/805/20/#805-20-50-1) - The fair value of the financial assets acquired includes receivables under [sales-type leases](https://asc.understandingaccounting.org/glossary/s/#sales-type-lease "From the perspective of a lessor, a lease that meets one or more of the criteria in paragraph 842-10-25-2 and is not an operating lease in accordance with paragraph 842-10-25-3A.") or [direct financing leases](https://asc.understandingaccounting.org/glossary/d/#direct-financing-lease "From the perspective of a lessor, a lease that meets none of the criteria in paragraph 842-10-25-2 but meets the criteria in paragraph 842-10-25-3(b)and is not an operating lease in accordance with paragraph 842-10-25-3A.") of data networking equipment with a fair value of $2,000. The gross amount due under the contracts is $3,100, of which $450 is expected to be uncollectible. ##### [805-10-55-45](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-45) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:ec3e79c9e6615b33b650844d9e239744386e987f58f7cd1bd6b2c6b3ee81c496 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [805-20-50-4A](https://asc.understandingaccounting.org/asc/805/20/#805-20-50-4A) - The fair value of the acquired identifiable intangible assets of $3,300 is provisional pending receipt of the final valuations for those assets. ##### [805-10-55-46](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-46) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:5154f7e96bfd5276914a2565471e618d44b61d61b49a15d19bc859b53fceb2d1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [805-20-50-1(d)](https://asc.understandingaccounting.org/asc/805/20/#805-20-50-1) - A liability of $1,000 has been recognized at fair value for expected warranty claims on products sold by Target during the last 3 years. Acquirer expects that the majority of this expenditure will be incurred in 20X3 and that all will be incurred by the end of 20X4. ##### [805-10-55-47](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-47) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:3d6e46ada200da5df7a942a8d90efb00f82d031f1659d0d3c40b33d500e6cb17 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [805-20-50-1(e)](https://asc.understandingaccounting.org/asc/805/20/#805-20-50-1) - The fair value of the noncontrolling interest in Target, a private entity, was estimated by applying the income approach and a market approach. This fair value measurement is based on significant inputs that are not observable in the market and thus represents a fair value measurement categorized within Level 3 of the fair value hierarchy as described in Section 820-10-35. Key assumptions include a discount rate range of 20 percent to 25 percent, a terminal value based on a range of terminal earnings before interest, taxes, depreciation, and amortization multiples between 3 and 5 (or, if appropriate, based on long-term sustainable growth rates ranging between 3 percent and 6 percent), financial multiples of entities deemed to be similar to Target, and adjustments because of the lack of control or lack of marketability that market participants would consider when measuring the fair value of the noncontrolling interest in Target. ##### [805-10-55-48](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-48) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:4a8f05af1c014c1713d5f822240690095930e50000facc972c28d35c71c95f9f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [805-10-50-2(g)(2)](https://asc.understandingaccounting.org/asc/805/10/#805-10-50-2) - Acquirer recognized a gain of $500 as a result of remeasuring to fair value its 15 percent equity interest in Target held before the business combination. The gain is included in other income in Acquirer's income statement for the year ending December 31, 20X2. ##### [805-10-55-49](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-49) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:7e395d3ad4e82f3d36cf82128bffa3df42f159bc55738c0809bc8005ddbb16ea Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [805-10-50-2(h)(1) through (h)(3)](https://asc.understandingaccounting.org/asc/805/10/#805-10-50-2) - The amounts of Target's revenue and earnings included in Acquirer's consolidated income statement for the year ended December 31, 20X2, and the revenue and earnings of the combined entity had the acquisition date been January 1, 20X2 (if comparative financial statements are not presented), and January 1, 20X1 (if comparative financial statements are presented), are as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-34AE1002-F88D-49F7-97DC-709D62A8093C-low.gif) Refer to Paragraph Revenue Earnings 805-10-50-2(h)(1) Actual from 6/30/20X2-12/31/20X2 " $4,090 " " $1,710 " 805-10-50-2(h)(2) "20X2 supplemental pro forma from 1/1/20X2-12/31/20X2" " $27,670 " " $12,870 " 805-10-50-2(h)(3) "20X2 supplemental pro forma from 1/1/20X2-12/31/20X2" " $27,670 " " $14,770 " "20X1 supplemental pro forma from 1/1/20X1-12/31/20X1" " $26,985 " " $12,325 " ##### [805-10-55-50](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-50) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:78f9a1b743d6ae7eeb5b814c39e0d3a28602e62c1dd63f7ff7b09716b0f76b5d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [805-10-50-2(h)(4)](https://asc.understandingaccounting.org/asc/805/10/#805-10-50-2) - 20X2 supplemental pro forma earnings were adjusted to exclude $1,250 of acquisition-related costs incurred in 20X2 and $650 of nonrecurring expense related to the fair value adjustment to acquisition-date inventory. 20X1 supplemental pro forma earnings were adjusted to include these charges. ##### [805-10-55-51](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-51) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:3f379d3d3863d69fa0d231f1213800d3a9c5a57848c28b5aecaa73054c51237b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The Examples in paragraphs [805-10-55-52 through 55-96](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-52) illustrate the guidance in paragraphs [805-10-55-4 through 55-6](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-4) and [805-10-55-8 through 55-9](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-8) on the definition of a business. In each of the Examples, the first step of the analysis is the evaluation of the threshold in paragraphs [805-10-55-5A through 55-5C](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5A) . If substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not a business. If that threshold is not met, an entity should evaluate whether the set includes an input and a substantive process that together significantly contribute to the ability to create outputs. To determine whether both an input and a substantive process are included in the set, an entity should complete its evaluation using the framework (guidance in paragraphs [805-10-55-5D through 55-6](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5D) and [805-10-55-8 through 55-9](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-8) ). ##### [805-10-55-52](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-52) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:3a37e0d839e9b60e27c27d22dbb4be4796e8839db6c97ae0eabe0541dfc54fb3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ABC acquires, renovates, leases, sells, and manages real estate properties. ABC acquires a portfolio of 10 single-family homes that each have in-place leases. The only elements included in the acquired set are the 10 single-family homes and the 10 in-place leases. Each single-family home includes the land, building, and property improvements. Each home has a different floor plan, square footage, lot, and interior design. No employees or other assets are acquired. ##### [805-10-55-53](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-53) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:e5b802c6e226d4c78ca38486bb34a86ec6d2fb50552e4750a32dcd20f506d804 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ABC first considers the threshold guidance in paragraphs [805-10-55-5A through 55-5C](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5A) . ABC concludes that the land, building, property improvements, and in-place leases at each property can be considered a single asset in accordance with paragraph [805-10-55-5B](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5B). That is, the building and property improvements are attached to the land and cannot be removed without incurring significant cost. Additionally, the in-place lease is an intangible asset that should be combined with the related real estate and considered a single asset. ##### [805-10-55-54](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-54) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:5a5ed41eb8b52dac618e8df8ea5ee2c94c0a880741497029e9d0fdfb57735e9d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ABC also concludes that the 10 single assets (the combined land, building, in-place lease intangible, and property improvements) are similar. Each home has a different floor plan; however, the nature of the assets (all single-family homes) are similar. ABC also concludes that the risks associated with managing and creating outputs are not significantly different. That is, the risks associated with operating the properties and tenant acquisition and management are not significantly different because the types of homes and class of customers are not significantly different. Similarly, the risks associated with operating in the real estate market of the homes acquired are not significantly different. Consequently, ABC concludes that substantially all of the fair value of the gross assets acquired is concentrated in the group of similar identifiable assets; thus, the set is not a business. ##### [805-10-55-55](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-55) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:5023de752e60b8ce35ebc78c6b29e1a754cfecaa57b7611280e647bb1de69e74 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assume the same facts as in Scenario 1 except that ABC also acquires an office park with six 10-story office buildings leased to maximum occupancy of which all have significant fair value. ABC also acquires the vendor contracts for outsourced cleaning, security, and maintenance. Seller's employees that perform leasing (sales, underwriting, and so forth), tenant management, financing, and other strategic management processes are not included in the set. ABC plans to replace the property management and employees with its own internal resources. ##### [805-10-55-56](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-56) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:1fc559a562946ce22787f0cfb6b3ab410e1151562a5189f7f8886262f5404344 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ABC concludes that the single-family homes and office park are not similar assets. ABC considers the risks associated with operating the assets, obtaining tenants, and tenant management between the single-family homes and office park to be significantly different because the scale of operations and risks associated with the class of customers are significantly different. Therefore, substantially all of the fair value of the gross assets acquired is not concentrated in a single identifiable asset or group of similar identifiable assets. Thus, ABC must further evaluate whether the set has the minimum requirements to be considered a business. ##### [805-10-55-57](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-57) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:8695d6faf7f2027af32b074784333435385798031dc3b8949f65d462c56c0fa5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The set has continuing revenues through the in-place leases and, therefore, has outputs. ABC must consider the criteria in paragraph [805-10-55-5E](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5E) to determine whether the set includes both an input and a substantive process that together significantly contribute to the ability to create outputs. ##### [805-10-55-58](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-58) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:d2373b5b4bbee77dbe25ef54499e4cf7abc488e706e392cc33e0013d0c40bc8e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ABC concludes that the criteria in paragraph [805-10-55-5E(a) through (b)](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5E) are not met because the set does not include employees and the processes performed through the cleaning and security contracts (the only processes acquired) will be considered ancillary or minor in the context of all the processes required to create outputs in the real estate industry. That is, while those outsourcing agreements may be considered to provide an organized workforce that performs cleaning and security processes when applied to the building, the processes performed by the cleaning, security, and maintenance personnel are not considered critical in the context of all the processes required to create outputs. ##### [805-10-55-59](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-59) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:544e1feb6da0cb5dba82dc300cc5334d304dc5bb1abb74ce7539b872ccb4c500 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ABC also concludes that the criterion in paragraph [805-10-55-5E(c)](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5E) is not met because the cleaning and security processes could be easily replaced with little cost, effort, or delay in the ability to continue producing outputs. While the cleaning and security processes are necessary for continued operations of the buildings, these contracts can be replaced quickly with little effect on the ability to continue producing outputs. ##### [805-10-55-60](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-60) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:5fd91b81a9ab0332ec2a774f1d3a8539a02597bfacbd8d2a777d235096178f34 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ABC concludes that the criterion in paragraph [805-10-55-5E(d)](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5E) is not met because the cleaning and security contracts are not considered unique or scarce. That is, these types of arrangements are readily accessible in the marketplace. ##### [805-10-55-61](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-61) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:f00eb24349316bfc76bc3394206d686c98f7c18d3e16b1bc132a0e5b652aae4f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Because none of the criteria were met, ABC concludes that the set does not include both an input and substantive processes that together significantly contribute to the ability to create outputs and, therefore, is not considered a business. ##### [805-10-55-62](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-62) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:f79131b0d7f3ce4071d484fdb6a90ab69c605dcc1837b88a6fa393113850daa8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assume the same facts as in Scenario 2, except that the set includes the employees responsible for leasing, tenant management, and managing and supervising all operational processes. ##### [805-10-55-63](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-63) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:d25667902e5d5e58eb1f1b6de2f83e99e1476598393344e24dec828e2991e1b2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The set has continuing revenues through the in-place leases and, therefore, has outputs. ABC must consider the criteria in paragraph [805-10-55-5E](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5E) to determine whether the set includes both an input and a substantive process that together significantly contribute to the ability to create outputs. ##### [805-10-55-64](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-64) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:77d6dc13ce6d7e61f49c2cfecff44e6665908dec9334827137b09d9204fff0fb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ABC determines that the criterion in paragraph [805-10-55-5E(a)](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5E) is met because the set includes an organized workforce that performs processes that when applied to the acquired inputs in the set (the land, building, and in-place leases) are critical to the ability to continue producing outputs. That is, ABC concludes that the leasing, tenant management, and supervision of the operational processes are critical to the creation of outputs. Because it includes both an input and a substantive process, the set is considered a business. ##### [805-10-55-65](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-65) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:d522daabcfb98d1ff9f4827682d5a3201f65ab8e2e2f4829055767827eae59db Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Pharma Co. purchases from Biotech a legal entity that contains the rights to a Phase 3 (in the clinical research phase) compound being developed to treat diabetes (the in-process research and development project). Included in the in-process research and development project is the historical know-how, formula protocols, designs, and procedures expected to be needed to complete the related phase of testing. The legal entity also holds an at-market clinical research organization contract and an at-market clinical manufacturing organization contract. No employees, other assets, or other activities are transferred. ##### [805-10-55-66](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-66) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:a3103ae8d58c8b577b73f3dca1ed7a4620347fe11066bdce346971b8c4a47bf0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Pharma Co. first considers the guidance in paragraphs [805-10-55-5A through 55-5C](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5A) . Pharma Co. concludes that the in-process research and development project is an identifiable intangible asset that would be accounted for as a single asset in a business combination. Pharma Co. also qualitatively concludes that there is no fair value associated with the clinical research organization contract and the clinical manufacturing organization contract because the services are being provided at market rates and could be provided by multiple vendors in the marketplace. Therefore, all of the consideration in the transaction will be allocated to the in-process research and development project. As such, Pharma Co. concludes that substantially all of the fair value of the gross assets acquired is concentrated in the single in-process research and development asset and the set is not a business. ##### [805-10-55-67](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-67) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:acfa377c2fc9c37f18b3f95e719d55721f72b4ceee5940a86506461c26dc6b11 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Pharma Co. purchases from Biotech a legal entity that contains the rights to a Phase 3 compound being developed to treat diabetes (Project 1) and a Phase 3 compound being developed to treat Alzheimer's disease (Project 2). Included with each project are the historical know-how, formula protocols, designs, and procedures expected to be needed to complete the related phase of testing. The legal entity also holds at-market clinical research organization contracts and at-market clinical manufacturing organization contracts associated with each project. Assume that Project 1 and Project 2 have equal fair value. No employees, other assets, or other activities are transferred. ##### [805-10-55-68](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-68) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:e759bc7894b1cb03dfe7853e469b6e21ac35aa7cd946a3261339cb7039288e15 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Pharma Co. concludes that Project 1 and Project 2 are each separately identifiable intangible assets, both of which would be accounted for as a single asset in a business combination. Pharma Co. then considers whether Project 1 and Project 2 are similar assets. Pharma Co. notes that the nature of the assets is similar in that both Project 1 and Project 2 are in-process research and development assets in the same major asset class. However, Pharma Co. concludes that Project 1 and Project 2 have significantly different risks associated with creating outputs from each asset because each project has different risks associated with developing and marketing the compound to customers. The projects are intended to treat significantly different medical conditions, and each project has a significantly different potential customer base and expected market and regulatory risks associated with the assets. Thus, Pharma Co. concludes that substantially all of the fair value of the gross assets acquired is not concentrated in a single identifiable asset or group of similar identifiable assets and that it must further evaluate whether the set has the minimum requirements to be considered a business. ##### [805-10-55-69](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-69) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:7ed079f8e403fd3f1791538663d0250b945c00c81b00efd06e8ac7f41bed0250 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Because the set does not have outputs, Pharma Co. evaluates the criteria in paragraph [805-10-55-5D](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5D) to determine whether the set has both an input and a substantive process that together significantly contribute to the ability to create outputs. Pharma Co. concludes that the criteria are not met because the set does not have employees. As such, Pharma Co. concludes that the set is not a business. ##### [805-10-55-70](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-70) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:8092c2b20982843ad7760ba6c1175b04200a9e8f1fe98cbe7904b1c99cad99e2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Pharma Co. buys all of the outstanding shares of Biotech. Biotech's operations include research and development activities on several drug compounds that it is developing (in-process research and development projects). The in-process research and development projects are in different phases of the U.S. Food and Drug Administration approval process and would treat significantly different diseases. The set includes senior management and scientists that have the necessary skills, knowledge, or experience to perform research and development activities. In addition, Biotech has long-lived tangible assets such as a corporate headquarters, a research lab, and lab equipment. Biotech does not yet have a marketable product and, therefore, has not generated revenues. Assume that each research and development project has a significant amount of fair value. ##### [805-10-55-71](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-71) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:ef2f9ddf3f950933fcc87551e8f48b50c94e9edfd74f8ad48a51ec9c7a67178e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Pharma Co. first considers the guidance in paragraphs [805-10-55-5A through 55-5C](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5A) . The identifiable assets in the set include multiple in-process research and development projects and tangible assets (the corporate headquarters, the research lab, and the lab equipment). Pharma Co. concludes that the in-process research and development projects are not similar assets because the projects have significantly different risks associated with managing the assets and creating the outputs (that is, because there are significantly different development risks in the different phases of development, market risks related to the different customer base, and potential markets for the compounds). In addition, Pharma Co. concludes that there is fair value associated with the acquired workforce because of the proprietary knowledge of and experience with Biotech's ongoing development projects and the potential for creation of new development projects that the workforce embodies. As such, Pharma Co. concludes that substantially all of the fair value of the gross assets acquired is not concentrated in a single identifiable asset or group of similar identifiable assets and that it must further evaluate whether the set has the minimum requirements to be considered a business. ##### [805-10-55-72](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-72) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:c6709ee8f3c54a0631d2148b8d0f06938164baa55a97206e64268afe0de10542 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Because the set does not have outputs, Pharma Co. evaluates the criteria in paragraph [805-10-55-5D](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5D) to determine whether the set has both an input and a substantive process that together significantly contribute to the ability to create outputs. Pharma Co. concludes that the criteria are met because the scientists make up an organized workforce that has the necessary skills, knowledge, or experience to perform processes that when applied to the in-process research and development inputs is critical to the ability to develop those inputs into a product that can be provided to a customer. Pharma Co. also determines that there is a more-than-insignificant amount of goodwill (including the fair value associated with the workforce), which is another indicator that the workforce is performing a critical process. Thus, the set includes both inputs and substantive processes and is a business. ##### [805-10-55-73](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-73) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:d98fdf7e44d87a5d4cb99bf1545c47cca0725dee265915fa65697d832e243f1b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Company A is a television broadcaster whose principal business is the ownership and operation of a television station group in the United States through which it broadcasts its proprietary health-care-related programming. Company B owns and operates several television stations in the western United States. Because of a recent merger, Company B must divest itself of a station in Portland, Oregon (KPOR), and agrees to sell the station to Company A. ##### [805-10-55-74](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-74) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:51ebf9224a9f0a7147b98f0ffa32fd10259d5ea89622dbec85bc5ef9a834a4ea Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Company A plans to change KPOR's programming format to its proprietary health-care-related programming. Therefore, Company A will receive only the U.S. Federal Communications Commission license, the broadcasting equipment, and the office building. KPOR will be integrated into Company A's operations, with most of the station processes centralized at Company A's corporate headquarters. Company A will not extend offers of employment to any of KPOR's employees or assume any of KPOR's contractual relationships. ##### [805-10-55-75](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-75) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:2a90c1afd9349e8153d63c829ed27941c0a837a06dfb91375d5a04e98336dca1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Company A first considers the guidance in paragraphs [805-10-55-5A through 55-5C](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5A) . The U.S. Federal Communications Commission license is an intangible asset that is recognized and measured separately in a business combination, while the broadcast equipment and building are tangible nonfinancial assets in different major classes. Company A concludes that the broadcast equipment and building are not considered a single asset because the equipment is not attached to the building and can be removed without significant cost or diminution in fair value. Furthermore, none of the assets will be considered similar in accordance with paragraph [805-10-55-5C](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5C) because the U.S. Federal Communications Commission license cannot be considered similar to tangible assets and the tangible assets are in different major asset classes. Each of the separate identifiable assets has significant fair value. Thus, Company A concludes that substantially all of the fair value of the gross assets acquired is not concentrated in a single identifiable asset or group of similar identifiable assets and that it must further evaluate whether the set has the minimum requirements to be considered a business. ##### [805-10-55-76](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-76) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:512202501fc14b571da9852aa568acc47d50a386758e31980c5cc14505dede44 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The set does not have outputs; therefore, Company A considers the criteria in paragraph [805-10-55-5D](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5D) to determine whether the set includes both an input and a substantive process that together significantly contribute to the ability to create outputs. The set does not include an organized workforce, so it does not meet the criteria in paragraph [805-10-55-5D](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5D). Therefore, the set does not include both an input and a substantive process and is not considered a business. ##### [805-10-55-77](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-77) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:4493ada4d6f40ce293ce5f11c08c2c9cd93b3f644746761e61c18772e8df7d9f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Widget Co. manufactures complex equipment and has manufacturing facilities throughout the world. Widget Co. decided to idle a facility in a foreign jurisdiction in a reorganization of its manufacturing footprint and furloughed the assembly line employees. ##### [805-10-55-78](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-78) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:c9f0bee7f442fe4008517e6e0134e3c28aa0a978167fbe3e8ea51fd6ecb25836 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Acquirer enters into an agreement to purchase a manufacturing facility and related equipment from Widget Co. To comply with the local labor laws, Acquirer also must assume the furloughed employees. ##### [805-10-55-79](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-79) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:f1ebb419ff32587d975df656a771dd318a18d9c5907919958b55e932f494c894 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The assets acquired include the equipment and facility (land and building) but no intellectual property, inventory, customer relationships, or any other inputs. ##### [805-10-55-80](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-80) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:a09c7e3838ffc213298f9281221e2555b2171629025a8f19d74a8049beb3da56 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Acquirer first considers the guidance in paragraphs [805-10-55-5A through 55-5C](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5A) . Acquirer concludes that the equipment in the facility can be removed without significant cost or diminution in utility or fair value because the equipment is not attached to the building and can be used in many types of manufacturing facilities. Therefore, the equipment and building are not a single asset. Furthermore, the equipment and facility are not considered similar assets because they are different major classes of tangible assets. Acquirer determines that there is significant fair value in both the equipment and the facility and, thus, concludes that it must further evaluate whether the set has the minimum requirements to be considered a business. ##### [805-10-55-81](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-81) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:ae9e4a5195b001ea230fdc0e8d3c66648101541ef165fcf13c77d0efde7094fd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The set is not currently producing outputs because there is no continuation of revenue before and after the transaction; therefore, Acquirer considers the criteria in paragraph [805-10-55-5D](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5D) and whether the set includes both employees that form an organized workforce and an input that the workforce could develop or convert into output. The set includes employees that have the necessary skills, knowledge, or experience to use the equipment; however, without intellectual property or other inputs that could be converted into outputs using the equipment, the set does not include both an organized workforce and an input that will meet the criteria in paragraph [805-10-55-5D](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5D). That is, the equipment itself cannot be developed or converted into an output by those employees. Therefore, the set is not a business. ##### [805-10-55-82](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-82) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:f8cd35d0b518fa6945a1b23e9cc731a238ae44619e63043720433ef3b12743c8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Company A is a distributor of food and beverages. Company A enters into an agreement to sublicense the Latin American distribution rights of Yogurt Brand F to Company B, whereby Company B will distribute Yogurt Brand F in Latin America. As part of the agreement, Company A transfers the existing customer contracts in Latin America to Company B and an at-market supply contract with the producer of Yogurt Brand F. Company A retains all of its employees and distribution capabilities. ##### [805-10-55-83](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-83) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:a2da1c57f28c188d2fb95294e5d289a34d41436a3d72662b59126e67d6279325 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Company B first considers the guidance in paragraphs [805-10-55-5A through 55-5C](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5A) . The identifiable assets that could be recognized in a business combination include the license to distribute Yogurt Brand F, customer contracts, and the supply agreement. Company B concludes that the license and customer contracts will have fair value assigned to them. Company B concludes that neither asset represents substantially all of the fair value of the gross assets. Company B then considers whether the license and customer contracts are a group of similar intangible assets. Because the license and customer contracts are in different major classes of identifiable intangible assets, they are not considered similar assets. Therefore, substantially all of the fair value of the gross assets acquired is not concentrated in a single identifiable asset or group of similar identifiable assets, and Company B must evaluate whether the set has both an input and a substantive process. ##### [805-10-55-84](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-84) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:1ec4e74f8f639609bf7186e463c62171bb5525a2188f9d6a08dac66aae66dff1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The set has outputs through the continuation of revenues with customers in Latin America. As such, Company B must evaluate the criteria in paragraph [805-10-55-5E](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5E) to determine whether the set includes an input and a substantive process that together significantly contribute to the ability to create outputs. Company B considers whether the acquired contracts are providing access to an organized workforce that performs a substantive process. However, because the contracts are not providing a service that applies a process to another acquired input, Company B concludes that the substance of the contracts are only that of acquiring inputs. The set is not a business because: 1. a It does not include an organized workforce that could meet the criteria in paragraph [805-10-55-5E(a) through (b)](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5E). 2. b There are no acquired processes that could meet the criteria in paragraph [805-10-55-5E(c) through (d)](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5E). 3. c It does not include both an input and a substantive process. ##### [805-10-55-85](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-85) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:79863175e3679aab4074cbcdd04b11bbbb053b34be0043f147af0e7c879097e9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Company A is a global producer of food and beverages. Company A sells the worldwide rights of Yogurt Brand F, including all related intellectual property, to Company B. Company B also acquires all customer contracts and relationships, finished goods inventory, marketing materials, customer incentive programs, raw material supply contracts, specialized equipment specific to manufacturing Yogurt Brand F, and documented processes and protocols to produce Yogurt Brand F. Company B does not receive employees, manufacturing facilities, all of the manufacturing equipment and processes required to produce the product, and distribution facilities and processes. ##### [805-10-55-86](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-86) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:1107fb066b2bb0da024146a5ae45cd341306792de24f9f371de3842c9c8eaf45 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Company B first considers the guidance in paragraphs [805-10-55-5A through 55-5C](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5A) . The gross assets include intellectual property (the trademark, the related trade name, and recipes) associated with Yogurt Brand F (the intellectual property associated with the brand is determined to be a single intangible asset in accordance with the guidance in paragraph [805-20-55-18](https://asc.understandingaccounting.org/asc/805/20/#805-20-55-18)), customer contracts and related relationships, equipment, finished goods inventory, and the excess of the consideration transferred over the fair value of the net assets acquired. Company B concludes that substantially all of the fair value of the gross assets acquired is not concentrated in a single identifiable asset or group of similar identifiable assets even though, for purposes of the analysis, the intellectual property is considered to be a single identifiable asset. In addition, because there is significant fair value in both tangible assets and intangible assets, Company B concludes that there is not a group of similar assets that meets this threshold. ##### [805-10-55-87](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-87) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:83a28c00b1001e7950c04cccc6f245cb4cf767e6954a501ade66925ea77f9626 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The set has outputs through the continuation of revenues, and Company B must consider the criteria in paragraph [805-10-55-5E](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5E) to determine whether the set includes both inputs and a substantive process that together significantly contribute to the ability to create outputs. The set does not include an organized workforce and, therefore, does not meet the criteria in paragraph [805-10-55-5E(a) through (b)](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5E). However, the acquired manufacturing processes are unique to Yogurt Brand F, and when those processes are applied to acquired inputs such as the intellectual property, raw material supply contracts, and the equipment, they significantly contribute to the ability to continue producing outputs. As such, the criterion in paragraph [805-10-55-5E(c)](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5E) is met, and the set includes both inputs and substantive processes. Because the set includes inputs and substantive processes that together significantly contribute to the ability to create outputs, it is considered a business. ##### [805-10-55-88](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-88) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:c8993b193534bf1f55e7571fbcc077980a375c2f5dff38a01f3353b97f1203d2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Bank A purchases a loan portfolio from Bank Z. The portfolio of loans consists of residential mortgages with terms, size, and risk ratings that are not significantly different. Bank A does not take over the employees of Bank Z that managed the credit risk of the portfolio and the relationship with the borrowers (such as brokers, vendors, and risk managers). ##### [805-10-55-89](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-89) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:529acb981e119bdaf9c41f4f937c53dbdc2efcd0d2245745b85cec480b8cc5cf Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Bank A first considers the guidance in paragraphs [805-10-55-5A through 55-5C](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5A) . Bank A concludes that the nature of the assets (residential mortgage loans) is similar. Bank A also concludes that the risks associated with managing and creating outputs are not significantly different because the terms, size, and risk ratings of the loans are not significantly different. Because all of the fair value of the gross assets acquired is in a group of similar identifiable assets, the set is not a business. ##### [805-10-55-90](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-90) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:70a39cc4af3a804565b1b587189f7ba328f30a98f8c5a1eb766c90be95c77378 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assume the same facts as in Scenario 1 except that the portfolio of loans consists of commercial loans with term, size, and risk ratings that are significantly different. ##### [805-10-55-91](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-91) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:45bbfd1c401d8118a73d226665e1dd7cfc384c776133c3ae0a9560e49382478f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Bank A first considers the guidance in paragraphs [805-10-55-5A through 55-5C](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5A) . Bank A must consider whether the loans are similar. Bank A concludes that the nature of the assets (commercial loans) is similar; however, because the term, size, and risk ratings of the loans are significantly different, Bank A concludes that the risks associated with managing and creating outputs are significantly different. Thus, Bank A concludes that substantially all of the fair value of the gross assets acquired is not concentrated in a single identifiable asset or group of similar identifiable assets and that it must further evaluate whether the set has the minimum requirements to be considered a business. ##### [805-10-55-92](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-92) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:7938662ed18dfc84c76a442cef0d86ad0960d2645c54699b7787de68b9147327 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The set has outputs through the continuation of revenues (interest income). Consequently, Bank A considers the criteria in paragraph [805-10-55-5E](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5E) to determine whether the set includes both inputs and a substantive process that together significantly contribute to the ability to create outputs. Because the set does not include an organized workforce or acquired processes, the criteria in paragraph [805-10-55-5E](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5E) are not met and the set is not a business. ##### [805-10-55-93](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-93) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:9f7c81c7ce2f7d4d2f81673adc6993d39b4bae835601f146929295071e56be3a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assume the same facts as in Scenario 2 except that Bank A takes over the employees of Bank Z that managed the credit risk of the portfolio and the relationship with the borrowers (such as brokers and risk managers). Additionally, consideration transferred is significantly higher than Bank A's estimate of the fair value of the loan portfolio. ##### [805-10-55-94](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-94) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:bf10faaf62579b27c6aec90af9a5167568840da48a63e4b2c502f4ca35a8b3f9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Bank A first considers the guidance in paragraphs [805-10-55-5A through 55-5C](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5A) . Bank A concludes that the loan portfolio does not consist of similar identifiable assets. Bank A also concludes that there is significant fair value associated with different groups of financial assets and the acquired workforce. As such, Bank A concludes that substantially all of the fair value of the gross assets acquired is not concentrated in a single identifiable asset or group of similar identifiable assets and that it must further evaluate whether the set has met the minimum requirements to be considered a business. ##### [805-10-55-95](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-95) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:c7820bd4276c9f2361efaec739a0446068cc208f45dcee7f97127f2b4b3e480a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The set has outputs through the continuation of revenues (interest income). Consequently, Bank A considers the criteria in paragraph [805-10-55-5E](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5E) to determine whether the set includes both an input and a substantive process that together significantly contribute to the ability to create outputs. ##### [805-10-55-96](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-96) Pending content: no Source downloaded (UTC): 2026-09-10T01:22:37.779Z to 2026-09-10T01:22:37.779Z Record version: sha256:dd7f2e5a64808dda645c0f2f895520e6d3970f8889dfbce75075019481f61798 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Bank A evaluates the criteria in paragraph [805-10-55-5E](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5E) and concludes that the criterion in paragraph [805-10-55-5E(a)](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5E) is met because the set includes an organized workforce that performs processes (customer relationship management and credit risk management) critical to the ability to continue producing outputs; therefore, the set is a business.