# ASC 805-40-55: Business Combinations — Reverse Acquisitions — 55 Implementation Guidance and Illustrations Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/805/40/#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): 2026-09-10T01:24:49.395Z to 2026-09-10T01:24:49.395Z Record version: sha256:e52b9599c120a077008d893f442eb94f656cb82cf8822c972ce15d8a6b5c5ead Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 805-40-55: 55 Implementation Guidance and Illustrations [Read section](https://asc.understandingaccounting.org/asc/805/40/#55-implementation-guidance-and-illustrations) SEC content: no ##### [805-40-55-1](https://asc.understandingaccounting.org/asc/805/40/#805-40-55-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:24:49.395Z to 2026-09-10T01:24:49.395Z Record version: sha256:c2ccad24e521f7de1de80bead4426f23974c733317f2e0b55803955fd3ed564c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Section is an integral part of the requirements of this Subtopic. This Section provides illustrations that address the application of accounting requirements 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.") to [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."). #### Illustrations ##### [805-40-55-2](https://asc.understandingaccounting.org/asc/805/40/#805-40-55-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:24:49.395Z to 2026-09-10T01:24:49.395Z Record version: sha256:79a82aaa1ec900a4af079eed68b1e167911a9e555030ec1a3cd20c37263b4804 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following Cases illustrate the guidance in this Subtopic on accounting for a reverse acquisition: 1. a A reverse acquisition if all the shares of the legal subsidiary are exchanged (Case A) 2. b A reverse acquisition if not all of the shares of the legal subsidiary are exchanged and 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.") results (Case B). ##### [805-40-55-3](https://asc.understandingaccounting.org/asc/805/40/#805-40-55-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:24:49.395Z to 2026-09-10T01:24:49.395Z Record version: sha256:7f7931aa577f53205638c7a8e38717a4ed407a7b5bffb0e7d43d5afc3948ddf0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In these Cases, Entity B, the legal subsidiary, acquires Entity A, the entity issuing equity instruments and therefore the legal parent, on September 30, 20X6. These Cases ignore the accounting for any income tax effects. Cases A and B share all of the following information and assumptions. ##### [805-40-55-4](https://asc.understandingaccounting.org/asc/805/40/#805-40-55-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:24:49.395Z to 2026-09-10T01:24:49.395Z Record version: sha256:02fb0939cad87005275cc4b7ecf15c6f89a9dd8525bff5c3a3dc293fa554c2eb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The statements of financial position of Entity A and Entity B immediately before the business combination are as follows. - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-180BA039-4183-4B21-812C-139336DCE136-low.gif) "Entity A (Legal Parent, Accounting Acquiree) $" "Entity B (Legal Subsidiary, Accounting Acquirer) $" Current assets 500 700 Noncurrent assets " 1,300 " " 3,000 " Total assets " 1,800 " " 3,700 " Current liabilities 300 600 Noncurrent liabilities 400 " 1,100 " Total liabilities 700 " 1,700 " Shareholders' equity Retained earnings 800 " 1,400 " Issued equity 100 common shares 300 - 60 common shares - 600 Total shareholders' equity " 1,100 " " 2,000 " "Total liabilities and shareholders' equity" " 1,800 " " 3,700 " ##### [805-40-55-5](https://asc.understandingaccounting.org/asc/805/40/#805-40-55-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:24:49.395Z to 2026-09-10T01:24:49.395Z Record version: sha256:de3931dfffb107865467a295497cafe3fa7fdf1801c84f9a7fd09c56dd82ac42 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. On September 30, 20X6, Entity A issues 2.5 shares in exchange for each common share of Entity B. All of Entity B's shareholders exchange their shares in Entity B. Therefore, Entity A issues 150 common shares in exchange for all 60 common shares of Entity B. ##### [805-40-55-6](https://asc.understandingaccounting.org/asc/805/40/#805-40-55-6) Pending content: no Source downloaded (UTC): 2026-09-10T01:24:49.395Z to 2026-09-10T01:24:49.395Z Record version: sha256:cd0c9c14da10cd7200441b8fe9960451691cf9b6f0567f35bc8163888ef1c6d3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The [fair value](https://asc.understandingaccounting.org/glossary/f/#fair-value "The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.") of each common share of Entity B at September 30, 20X6, is $40. The quoted market price of Entity A's common shares at that date is $16. ##### [805-40-55-7](https://asc.understandingaccounting.org/asc/805/40/#805-40-55-7) Pending content: no Source downloaded (UTC): 2026-09-10T01:24:49.395Z to 2026-09-10T01:24:49.395Z Record version: sha256:8fa9ce1d4604aaa65b4cfbd721922852aa0973bee7a75b07a1050a78eccf9e4a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The fair values of Entity A's identifiable assets and liabilities at September 30, 20X6, are the same as their carrying amounts, except that the fair value of Entity A's noncurrent assets at September 30, 20X6, is $1,500. ##### [805-40-55-8](https://asc.understandingaccounting.org/asc/805/40/#805-40-55-8) Pending content: no Source downloaded (UTC): 2026-09-10T01:24:49.395Z to 2026-09-10T01:24:49.395Z Record version: sha256:3fdcda02ad1c44812d47cafdc045c7c1d00d270741c10848df16c1a76dc45e82 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Case illustrates the accounting for a reverse acquisition if all of the shares of the legal subsidiary, the accounting acquirer, are exchanged in a business combination. The accounting illustrated in this Case includes the calculation of the fair value of the consideration transferred, the measurement 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.") and the calculation of earnings per share (EPS). ##### [805-40-55-9](https://asc.understandingaccounting.org/asc/805/40/#805-40-55-9) Pending content: no Source downloaded (UTC): 2026-09-10T01:24:49.395Z to 2026-09-10T01:24:49.395Z Record version: sha256:7df7e2a9f4de868296ab81fd92c096de5775651f606d677a4cded177876b9cb5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The calculation of the fair value of the consideration transferred follows. ##### [805-40-55-10](https://asc.understandingaccounting.org/asc/805/40/#805-40-55-10) Pending content: no Source downloaded (UTC): 2026-09-10T01:24:49.395Z to 2026-09-10T01:24:49.395Z Record version: sha256:5887436a89aa80481d75236a286793d7f88bc180eaf00173c24d70e04bad9cb1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. As a result of the issuance of 150 common shares by Entity A (legal parent, accounting acquiree), Entity B's shareholders own 60 percent of the issued shares of the combined entity, that is, 150 of 250 issued shares. The remaining 40 percent are owned by Entity A's shareholders. If the business combination had taken the form of Entity B issuing additional common shares to Entity A's shareholders in exchange for their common shares in Entity A, Entity B would have had to issue 40 shares for the ratio of ownership interest in the combined entity to be the same. Entity B's shareholders would then own 60 of the 100 issued shares of Entity B—60 percent of the combined entity. As a result, the fair value of the consideration effectively transferred by Entity B and the group's interest in Entity A is $1,600 (40 shares with a per-share fair value of $40). The fair value of the consideration effectively transferred should be based on the most reliable measure. In this Case, the quoted market price of Entity A's shares provides a more reliable basis for measuring the consideration effectively transferred than the estimated fair value of the shares in Entity B, and the consideration is measured using the market price of Entity A's shares―100 shares with a per-share fair value of $16. ##### [805-40-55-11](https://asc.understandingaccounting.org/asc/805/40/#805-40-55-11) Pending content: no Source downloaded (UTC): 2026-09-10T01:24:49.395Z to 2026-09-10T01:24:49.395Z Record version: sha256:f14b996eee03fad18d00816b097547307aecb6498e0a50f5faad4f15377bcb92 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Goodwill is measured as follows. ##### [805-40-55-12](https://asc.understandingaccounting.org/asc/805/40/#805-40-55-12) Pending content: no Source downloaded (UTC): 2026-09-10T01:24:49.395Z to 2026-09-10T01:24:49.395Z Record version: sha256:03216bf2f3ed21e89603776924d003bdcc42677ddc4f3cdef4e1a88aeed9cc9d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Goodwill is measured as the excess of the fair value of the consideration effectively transferred (the group's interest in Entity A) over the net amount of Entity A's recognized identifiable assets and liabilities, as follows. - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-4242E1F3-5446-4094-A968-3CE383748013-low.gif) $ $ Consideration effectively transferred " 1,600 " Net recognized values of Entity A's identifiable assets and liabilities Current assets 500 Noncurrent assets " 1,500 " Current liabilities (300) Noncurrent liabilities (400) " (1,300)" Goodwill 300 ##### [805-40-55-13](https://asc.understandingaccounting.org/asc/805/40/#805-40-55-13) Pending content: no Source downloaded (UTC): 2026-09-10T01:24:49.395Z to 2026-09-10T01:24:49.395Z Record version: sha256:4d4b9fecf57630a1fb5e8a7cddc6890e4b8737484cc7c9693109e2c07baa027f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The consolidated statement of financial position immediately after the business combination is as follows. - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-F3D97CC2-3FAB-4DF0-8FD0-7E5A8A27814B-low.gif) $ Current assets ($700 + $500) " 1,200 " "Noncurrent assets ($3,000 + $1,500)" " 4,500 " Goodwill 300 Total assets " 6,000 " Current liabilities ($600 + $300) 900 "Noncurrent liabilities ($1,100 + $400)" " 1,500 " Total liabilities " 2,400 " Shareholders' equity Retained earnings " 1,400 " Issued equity "250 common shares ($600 + $1,600)" " 2,200 " Total shareholders' equity " 3,600 " Total liabilities and shareholders' equity " 6,000 " ##### [805-40-55-14](https://asc.understandingaccounting.org/asc/805/40/#805-40-55-14) Pending content: no Source downloaded (UTC): 2026-09-10T01:24:49.395Z to 2026-09-10T01:24:49.395Z Record version: sha256:a16478b60657e645a47946b2091b6d25df67f3d387f0362d34c4fb9f2cb7a9f1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In accordance with paragraph [805-40-45-2(c) through (d)](https://asc.understandingaccounting.org/asc/805/40/#805-40-45-2), the amount recognized as issued equity interests in the consolidated financial statements ($2,200) is determined by adding the issued equity of the legal subsidiary immediately before the business combination ($600) and the fair value of the consideration effectively transferred, measured in accordance with paragraph [805-40-30-2](https://asc.understandingaccounting.org/asc/805/40/#805-40-30-2) ($1,600). However, the equity structure appearing in the consolidated financial statements (that is, the number and type of equity interests issued) must reflect the equity structure of the legal parent, including the equity interests issued by the legal parent to effect the combination. ##### [805-40-55-15](https://asc.understandingaccounting.org/asc/805/40/#805-40-55-15) Pending content: no Source downloaded (UTC): 2026-09-10T01:24:49.395Z to 2026-09-10T01:24:49.395Z Record version: sha256:9f036e7c74783aa8e7fde2dc735b97e5caa5568547c7cbf92ce69615dc4f25cf Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The calculation of EPS follows. ##### [805-40-55-16](https://asc.understandingaccounting.org/asc/805/40/#805-40-55-16) Pending content: no Source downloaded (UTC): 2026-09-10T01:24:49.395Z to 2026-09-10T01:24:49.395Z Record version: sha256:28432ebaa8c1aab1dd3c39f0197483ebeba215258af2d7ca62ef2578c89442d2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity B's earnings for the annual period ended December 31, 20X5, were $600, and the consolidated earnings for the annual period ended December 31, 20X6, are $800. There was no change in the number of common shares issued by Entity B during the annual period ended December 31, 20X5, and during the period from January 1, 20X6, to the date of the reverse acquisition on September 30, 20X6. EPS for the annual period ended December 31, 20X6, is calculated as follows. - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-79CA520B-A93D-463B-A679-381CEB317D82-low.gif) "Number of shares deemed to be outstanding for the period from January 1, 20X6, to the acquisition date (that is, the number of common shares issued by Entity A \[legal parent, accounting acquiree\] in the reverse acquisition)" 150 "Number of shares outstanding from the acquisition date to December 31, 20X6" 250 "Weighted-average number of common shares outstanding (\[150 × 9 ÷ 12\] + \[250 × 3 ÷ 12\])" 175 EPS (800 ÷ 175) $4.57 ##### [805-40-55-17](https://asc.understandingaccounting.org/asc/805/40/#805-40-55-17) Pending content: no Source downloaded (UTC): 2026-09-10T01:24:49.395Z to 2026-09-10T01:24:49.395Z Record version: sha256:314d35b3fed2e084f524184876202b7b223594283bc41ce222782eaf1745d556 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Restated EPS for the annual period ending December 31, 20X5, is $4.00 (calculated as the earnings of Entity B of 600 divided by the 150 common shares Entity A issued in the reverse acquisition). ##### [805-40-55-18](https://asc.understandingaccounting.org/asc/805/40/#805-40-55-18) Pending content: no Source downloaded (UTC): 2026-09-10T01:24:49.395Z to 2026-09-10T01:24:49.395Z Record version: sha256:763a5d64d06659aae3f61fbd5c461515d2fe891ea312bbb1eca4917b566215e7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Case illustrates the accounting for a reverse acquisition if not all of the shares of the legal subsidiary, the accounting acquirer, are exchanged in a business combination and a noncontrolling interest results. ##### [805-40-55-19](https://asc.understandingaccounting.org/asc/805/40/#805-40-55-19) Pending content: no Source downloaded (UTC): 2026-09-10T01:24:49.395Z to 2026-09-10T01:24:49.395Z Record version: sha256:9b96062c932a814c1854f63a4abcc80da9b397861fe070de18073eed91936f4b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assume the same facts as in Case A except that only 56 of Entity B's 60 common shares are exchanged. Because Entity A issues 2.5 shares in exchange for each common share of Entity B, Entity A issues only 140 (rather than 150) shares. As a result, Entity B's shareholders own 58.3 percent of the issued shares of the combined entity (140 of 240 issued shares). The fair value of the consideration transferred for Entity A, the accounting acquiree, is calculated by assuming that the combination had been effected by Entity B's issuing additional common shares to the shareholders of Entity A in exchange for their common shares in Entity A. That is because Entity B is the accounting acquirer, and paragraphs [805-30-30-7 through 30-8](https://asc.understandingaccounting.org/asc/805/30/#805-30-30-7) require the acquirer to measure the consideration exchanged for the accounting acquiree. ##### [805-40-55-20](https://asc.understandingaccounting.org/asc/805/40/#805-40-55-20) Pending content: no Source downloaded (UTC): 2026-09-10T01:24:49.395Z to 2026-09-10T01:24:49.395Z Record version: sha256:21536bdb2f7764c51279eaffad35fcb834c3006f489b56bbc519e5edb9df93e3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In calculating the number of shares that Entity B would have had to issue, the noncontrolling interest is ignored. The majority shareholders own 56 shares of Entity B. For that to represent a 58.3 percent equity interest, Entity B would have had to issue an additional 40 shares. The majority shareholders would then own 56 of the 96 issued shares of Entity B and, therefore, 58.3 percent of the combined entity. As a result, the fair value of the consideration transferred for Entity A, the accounting acquiree, is $1,600 (that is, 40 shares each with a fair value of $40). That is the same amount as when all 60 of Entity B's shareholders tender all 60 of its common shares for exchange. The recognized amount of the group's interest in Entity A, the accounting acquiree, does not change if some of Entity B's shareholders do not participate in the exchange. ##### [805-40-55-21](https://asc.understandingaccounting.org/asc/805/40/#805-40-55-21) Pending content: no Source downloaded (UTC): 2026-09-10T01:24:49.395Z to 2026-09-10T01:24:49.395Z Record version: sha256:a8e35f61b300c57d5fe5bc0f1cc63bf8170e43a47e4b00d3c55e97caff4b663c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The noncontrolling interest is represented by the 4 shares of the total 60 shares of Entity B that are not exchanged for shares of Entity A. Therefore, the noncontrolling interest is 6.7 percent. The noncontrolling interest reflects the noncontrolling shareholders' proportionate interests in the precombination carrying amounts of the net assets of Entity B, the legal subsidiary. Therefore, the consolidated statement of financial position is adjusted to show a noncontrolling interest of 6.7 percent of the precombination carrying amounts of Entity B's net assets (that is, $134 or 6.7 percent of $2,000). ##### [805-40-55-22](https://asc.understandingaccounting.org/asc/805/40/#805-40-55-22) Pending content: no Source downloaded (UTC): 2026-09-10T01:24:49.395Z to 2026-09-10T01:24:49.395Z Record version: sha256:cdcfd4aff78290e36ce99d98044a8f73ef99d3d2f03118262f5cdddcd42969a5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The consolidated statement of financial position at September 30, 20X6, reflecting the noncontrolling interest is as follows. - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-85941C6C-8DD0-4747-9BAC-DA612B092E03-low.gif) $ Current assets ($700 + $500) " 1,200 " "Noncurrent assets ($3,000 + $1,500)" " 4,500 " Goodwill 300 Total assets " 6,000 " Current liabilities ($600 + $300) 900 "Noncurrent liabilities ($1,100 + $400)" " 1,500 " Total liabilities " 2,400 " Shareholders' equity "Retained earnings ($1,400 × 93.3%)" " 1,306 " Issued equity "240 common shares ($560 + $1,600)" " 2,160 " Noncontrolling interest 134 Total shareholders' equity " 3,600 " Total liabilities and shareholders' equity " 6,000 " ##### [805-40-55-23](https://asc.understandingaccounting.org/asc/805/40/#805-40-55-23) Pending content: no Source downloaded (UTC): 2026-09-10T01:24:49.395Z to 2026-09-10T01:24:49.395Z Record version: sha256:5936230ce080407c563381f7786001f82d408060df4648901f46d7ab8da0cac9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The noncontrolling interest of $134 has 2 components. The first component is the reclassification of the noncontrolling interest's share of the accounting acquirer's retained earnings immediately before the acquisition ($1,400 × 6.7% or $93.80). The second component represents the reclassification of the noncontrolling interest's share of the accounting acquirer's issued equity ($600 × 6.7% or $40.20).