# ASC 805-40-25: Business Combinations — Reverse Acquisitions — 25 Recognition

Source: FASB Accounting Standards Codification, Basic View

[Read online](https://asc.understandingaccounting.org/asc/805/40/#25-recognition)

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## ASC 805-40-25: 25 Recognition

[Read section](https://asc.understandingaccounting.org/asc/805/40/#25-recognition)

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##### [805-40-25-1](https://asc.understandingaccounting.org/asc/805/40/#805-40-25-1)

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For a [business combination](https://asc.understandingaccounting.org/glossary/b/#business-combination "A transaction or other event in which an acquirer obtains control of one or more businesses. Transactions sometimes referred to as true mergers or mergers of equals also are business combinations. See also Acquisition by a Not-for-Profit Entity.") transaction to be accounted for as a [reverse acquisition](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 accounting acquiree must meet the definition of 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."). All of the recognition principles in Subtopics 805-10, 805-20, and 805-30, including the requirement to recognize [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."), apply to a reverse acquisition.

#### Noncontrolling Interest

##### [805-40-25-2](https://asc.understandingaccounting.org/asc/805/40/#805-40-25-2)

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In a reverse acquisition, some of the owners of the legal acquiree (the accounting acquirer) might not exchange their equity interests for equity interests of the legal parent (the accounting acquiree). Those owners are treated as a [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 the consolidated financial statements after the reverse acquisition. That is because the owners of the legal acquiree that do not exchange their equity interests for equity interests of the legal acquirer have an interest in only the results and net assets of the legal acquiree―not in the results and net assets of the combined entity. Conversely, even though the legal acquirer is the [acquiree](https://asc.understandingaccounting.org/glossary/a/#acquiree "The business or businesses that the acquirer obtains control of in a business combination. This term also includes a nonprofit activity or business that a not-for-profit acquirer obtains control of in an acquisition by a not-for-profit entity.") for accounting purposes, the owners of the legal acquirer have an interest in the results and net assets of the combined entity.