# ASC 805-40: Business Combinations — Reverse Acquisitions Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/805/40/) 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): 2026-09-10T01:24:30.047Z to 2026-09-10T01:24:49.395Z Record version: sha256:2e9a764c752939d934d2c751be2ce0f80f2feabdf6554403eed66f0b69208261 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 805-40: Business Combinations — Reverse Acquisitions ### Machine-generated study aids ```json { "summary": "ASC 805-40 explains how to apply the acquisition method when the legal acquirer (the entity that issues equity, often a public shell) is the accounting acquiree and the legal subsidiary is the accounting acquirer — a reverse acquisition. The accounting acquiree must be a business, and all recognition and measurement principles of 805-10, 805-20 and 805-30 (including goodwill) apply, but consideration transferred is imputed as the number of shares the legal subsidiary would have had to issue to give the legal parent's owners their resulting ownership percentage (805-40-30-2). The consolidated statements are issued in the legal parent's name yet are a continuation of the legal subsidiary's financial statements, with the subsidiary's legal capital retroactively restated to the parent's equity structure (805-40-45-1 through 45-2).", "key_points": [ "A transaction is accounted for as a reverse acquisition only if the accounting acquiree meets the definition of a business, and all recognition principles of 805-10, 805-20 and 805-30 — including recognizing goodwill — apply (805-40-25-1).", "The acquisition-date fair value of consideration transferred is based on the number of equity interests the legal subsidiary would hypothetically have had to issue to give the legal parent's owners the same percentage interest in the combined entity, measured using the most reliable measure of fair value (805-40-30-2; 805-40-55-10).", "The legal subsidiary's (accounting acquirer's) assets, liabilities, retained earnings and other equity are carried at precombination carrying amounts, while the legal parent's (accounting acquiree's) assets and liabilities are recognized and measured under the acquisition method (805-40-45-2(a)-(c)).", "Owners of the legal acquiree who do not exchange their shares become a noncontrolling interest, measured at their proportionate share of the legal subsidiary's precombination carrying amounts rather than fair value (805-40-25-2; 805-40-30-3; 805-40-45-2(e)).", "Issued equity in the consolidated balance sheet equals the accounting acquirer's precombination issued equity plus the fair value of consideration effectively transferred, but the number and type of shares reflect the legal parent's equity structure, with comparatives retroactively adjusted (805-40-45-1; 45-2(d); 45-3; illustrated at 805-40-55-14).", "For EPS, weighted-average shares before the acquisition date are the accounting acquirer's historical weighted-average shares multiplied by the exchange ratio, and actual legal acquirer shares thereafter; prior comparative-period EPS uses the accounting acquirer's income over its restated share count (805-40-45-4; 45-5)." ], "categories": [ "Business combinations", "Consolidation", "Financial statement presentation", "Earnings per share" ], "audience_level": "advanced", "student_note": "Reverse acquisitions are the standard accounting model for private companies going public via a shell or SPAC merger, so exam questions focus on identifying the accounting acquirer and computing imputed consideration and goodwill. The most common misunderstanding is thinking the noncontrolling interest is measured at fair value — here it is the NCI's share of the legal subsidiary's precombination carrying amounts (805-40-30-3).", "related_topics": [ "805-10", "805-20", "805-30", "810-10", "260-10", "805-50" ], "key_concepts": [ "reverse acquisition", "accounting acquirer versus legal acquirer", "consideration effectively transferred", "exchange ratio", "noncontrolling interest at precombination carrying amount", "retroactive restatement of legal capital", "goodwill measurement", "earnings per share restatement" ] } ``` Source downloaded (UTC): 2026-09-10T01:24:30.047Z to 2026-09-10T01:24:30.047Z Record version: sha256:62d6c821063f4678dbe49d960a60131e56aa7728115b01c59c66cf6450814390 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 805-40-00: 00 Status [Read section](https://asc.understandingaccounting.org/asc/805/40/#00-status) SEC content: no ##### [805-40-00-1](https://asc.understandingaccounting.org/asc/805/40/#805-40-00-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:24:30.047Z to 2026-09-10T01:24:30.047Z Record version: sha256:c24a877126fbb341a67056c6621308eb9aaad22e3ba1a02047bfce185760c418 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table identifies the changes made to this Subtopic.
ParagraphActionAccounting Standards UpdateDate
AcquireeAmendedAccounting Standards Update No. 2010-0701/28/2010
AcquirerAmendedAccounting Standards Update No. 2025-0305/12/2025
BusinessAmendedAccounting Standards Update No. 2017-0101/05/2017
Business CombinationAmendedAccounting Standards Update No. 2010-0701/28/2010
GoodwillAmendedAccounting Standards Update No. 2023-0508/23/2023
GoodwillAmendedAccounting Standards Update No. 2010-0701/28/2010
Variable Interest EntitySupersededAccounting Standards Update No. 2025-0305/12/2025
805-40-55-19AmendedAccounting Standards Update No. 2010-0802/02/2010
Source downloaded (UTC): 2026-09-10T01:24:31.869Z to 2026-09-10T01:24:31.869Z Record version: sha256:2c564c3bf5dff5d1dc2a429f19a79ec760bdd428697b355c94b28668963bbf8b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 805-40-05: 05 Overview and Background [Read section](https://asc.understandingaccounting.org/asc/805/40/#05-overview-and-background) SEC content: no ##### [805-40-05-1](https://asc.understandingaccounting.org/asc/805/40/#805-40-05-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:24:31.869Z to 2026-09-10T01:24:31.869Z Record version: sha256:241709cd93fe1a5056aadeb3a6fde569f9898dbf080f79b04560ce69747d0248 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic provides incremental guidance on the application of the acquisition method (as described in paragraph [805-10-05-4](https://asc.understandingaccounting.org/asc/805/10/#805-10-05-4)) to 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.") that is 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."). ##### [805-40-05-2](https://asc.understandingaccounting.org/asc/805/40/#805-40-05-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:24:31.869Z to 2026-09-10T01:24:31.869Z Record version: sha256:90c5d61d3eee2ebc8cf4511c180dd23e8aa4959f8702a89f74555975924c4504 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. As one example of a reverse acquisition, a private operating entity may want to become a public entity but not want to register its equity shares. To become a public entity, the private entity will arrange for a public entity to acquire its equity interests in exchange for the equity interests of the public entity. In this situation, the public entity is the legal acquirer because it issued its equity interests, and the private entity is the legal acquiree because its equity interests were acquired. However, application of the guidance in paragraphs [805-10-55-11 through 55-15](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-11) results in identifying: 1. a The public entity as 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 accounting acquiree) 2. b The private entity as the [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.") for accounting purposes (the accounting acquirer). Source downloaded (UTC): 2026-09-10T01:24:35.452Z to 2026-09-10T01:24:35.452Z Record version: sha256:fe7f26435640c76527af1cd5aa8771cf0d24fd023cd8294a2ccb2349e7d0c304 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 805-40-15: 15 Scope and Scope Exceptions [Read section](https://asc.understandingaccounting.org/asc/805/40/#15-scope-and-scope-exceptions) SEC content: no #### Overall Guidance ##### [805-40-15-1](https://asc.understandingaccounting.org/asc/805/40/#805-40-15-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:24:35.452Z to 2026-09-10T01:24:35.452Z Record version: sha256:91627af90cc10d8e65e49dc0aafb202fe445a7c57374db7015f988f3a66a3beb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 805-10-15, with specific transaction qualifications noted below. #### Transactions ##### [805-40-15-2](https://asc.understandingaccounting.org/asc/805/40/#805-40-15-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:24:35.452Z to 2026-09-10T01:24:35.452Z Record version: sha256:b5e1fd2dfe8abaab44aaed76e4f89d6c39971a994ffbefee8cab918b7b0a5a3c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The guidance in this Subtopic applies to [business combinations](https://asc.understandingaccounting.org/glossary/b/#business-combination "A transaction or other event in which an acquirer obtains control of one or more businesses. Transactions sometimes referred to as true mergers or mergers of equals also are business combinations. See also Acquisition by a Not-for-Profit Entity.") that are [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."). Source downloaded (UTC): 2026-09-10T01:24:41.537Z to 2026-09-10T01:24:41.537Z Record version: sha256:1a547dd0835860c09b29ad6cdcff72e8e01d632e3aec6f97143487666cc84946 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 805-40-25: 25 Recognition [Read section](https://asc.understandingaccounting.org/asc/805/40/#25-recognition) SEC content: no ##### [805-40-25-1](https://asc.understandingaccounting.org/asc/805/40/#805-40-25-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:24:41.537Z to 2026-09-10T01:24:41.537Z Record version: sha256:360284c635f6f2998dbf1ec5721706d3afb835905a1045aff1d97039d81adef0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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) Pending content: no Source downloaded (UTC): 2026-09-10T01:24:41.537Z to 2026-09-10T01:24:41.537Z Record version: sha256:92dedb7faf8c93faa5304129ed063f53915c8646b58525866f8232d0c2c5edd5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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. Source downloaded (UTC): 2026-09-10T01:24:43.498Z to 2026-09-10T01:24:43.498Z Record version: sha256:ea456696b429fd4bce70ae3bf0b86fa0d6fa3bb4b917d090a156a8c3ef1a69f3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 805-40-30: 30 Initial Measurement [Read section](https://asc.understandingaccounting.org/asc/805/40/#30-initial-measurement) SEC content: no ##### [805-40-30-1](https://asc.understandingaccounting.org/asc/805/40/#805-40-30-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:24:43.498Z to 2026-09-10T01:24:43.498Z Record version: sha256:5e1fc01b0b780325790939a7191f4ff56e81f5fd2a7a3a1d0d131a898d832dfb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. All of the measurement principles applicable to [business combinations](https://asc.understandingaccounting.org/glossary/b/#business-combination "A transaction or other event in which an acquirer obtains control of one or more businesses. Transactions sometimes referred to as true mergers or mergers of equals also are business combinations. See also Acquisition by a Not-for-Profit Entity.") in Subtopics 805-10, 805-20, and 805-30 apply to 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."). #### Measuring the Consideration Transferred ##### [805-40-30-2](https://asc.understandingaccounting.org/asc/805/40/#805-40-30-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:24:43.498Z to 2026-09-10T01:24:43.498Z Record version: sha256:cd488fa36f654609926fd6b0355ce9afdd25931ef067ae0a449766bd60cf32ce Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In a reverse acquisition, the accounting acquirer usually issues no consideration for 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."). Instead, the accounting acquiree usually issues its equity shares to the owners of the accounting acquirer. Accordingly, the [acquisition-date](https://asc.understandingaccounting.org/glossary/a/#acquisition-date "The date on which the acquirer obtains control of the acquiree.") [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 consideration transferred by the accounting acquirer for its interest in the accounting acquiree is based on the number of equity interests the legal subsidiary would have had to issue to give the owners of the legal parent the same percentage equity interest in the combined entity that results from the reverse acquisition. Example 1, Case A (see paragraph [805-40-55-8](https://asc.understandingaccounting.org/asc/805/40/#805-40-55-8)) illustrates that calculation. The fair value of the number of equity interests calculated in that way can be used as the fair value of consideration transferred in exchange for the acquiree. #### Noncontrolling Interest ##### [805-40-30-3](https://asc.understandingaccounting.org/asc/805/40/#805-40-30-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:24:43.498Z to 2026-09-10T01:24:43.498Z Record version: sha256:179f1ebd1c02cf11c75dbb5ab41fab988c6d447685e26b8474dac0da90184839 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The assets and liabilities of the legal acquiree are measured and recognized in the consolidated financial statements at their precombination carrying amounts (see paragraph [805-40-45-2(a)](https://asc.understandingaccounting.org/asc/805/40/#805-40-45-2)). Therefore, in a reverse acquisition the noncontrolling interest reflects the noncontrolling shareholders' proportionate interest in the precombination carrying amounts of the legal acquiree's net assets even though the noncontrolling interests in other acquisitions are measured at their fair values at the acquisition date. #### Consolidated Financial Statements Following a Reverse Acquisition ##### [805-40-30-4](https://asc.understandingaccounting.org/asc/805/40/#805-40-30-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:24:43.498Z to 2026-09-10T01:24:43.498Z Record version: sha256:6fa0b1cbbce829b7341910f625e713d69a9c2d1af4d51d4c32cf59ece37b6203 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [805-40-45-1](https://asc.understandingaccounting.org/asc/805/40/#805-40-45-1) provides guidance on required adjustments to the accounting acquirer's legal capital to reflect the legal capital of the legal parent (accounting acquiree) in the consolidated financial statements following a reverse acquisition. Source downloaded (UTC): 2026-09-10T01:24:47.609Z to 2026-09-10T01:24:47.609Z Record version: sha256:14a7c44307582955058da130ecf8e380769677bc33c2992c0edcabac3b912d75 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 805-40-45: 45 Other Presentation Matters [Read section](https://asc.understandingaccounting.org/asc/805/40/#45-other-presentation-matters) SEC content: no #### Preparation and Presentation of Consolidated Financial Statements ##### [805-40-45-1](https://asc.understandingaccounting.org/asc/805/40/#805-40-45-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:24:47.609Z to 2026-09-10T01:24:47.609Z Record version: sha256:97290714a24a86123bc560d8842ceb2af71a07627a522d99a2a9c866c1f9379c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Consolidated financial statements prepared following 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.") are issued under the name of the legal parent (accounting acquiree) but described in the notes as a continuation of the financial statements of the legal subsidiary (accounting acquirer), with one adjustment, which is to retroactively adjust the accounting acquirer's legal capital to reflect the legal capital of the accounting acquiree. That adjustment is required to reflect the capital of the legal parent (the accounting acquiree). Comparative information presented in those consolidated financial statements also is retroactively adjusted to reflect the legal capital of the legal parent (accounting acquiree). ##### [805-40-45-2](https://asc.understandingaccounting.org/asc/805/40/#805-40-45-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:24:47.609Z to 2026-09-10T01:24:47.609Z Record version: sha256:944c70d26975b635fef6c2dc948cd6ddc12b0068a119fb43dc409d8d418f4b84 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Because the consolidated financial statements represent the continuation of the financial statements of the legal subsidiary except for its capital structure, the consolidated financial statements reflect all of the following: 1. a The assets and liabilities of the legal subsidiary (the accounting acquirer) recognized and measured at their precombination carrying amounts. 2. b The assets and liabilities of the legal parent (the accounting acquiree) recognized and measured in accordance with the guidance in this Topic applicable to [business combinations](https://asc.understandingaccounting.org/glossary/b/#business-combination "A transaction or other event in which an acquirer obtains control of one or more businesses. Transactions sometimes referred to as true mergers or mergers of equals also are business combinations. See also Acquisition by a Not-for-Profit Entity."). 3. c The retained earnings and other equity balances of the legal subsidiary (accounting acquirer) before the business combination. 4. d The amount recognized as issued equity interests in the consolidated financial statements determined by adding the issued equity interest of the legal subsidiary (the accounting acquirer) outstanding immediately before the business combination to 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 the legal parent (accounting acquiree) determined in accordance with the guidance in this Topic applicable to business combinations. However, the equity structure (that is, the number and type of equity interests issued) reflects the equity structure of the legal parent (the accounting acquiree), including the equity interests the legal parent issued to effect the combination. Accordingly, the equity structure of the legal subsidiary (the accounting acquirer) is restated using the exchange ratio established in the acquisition agreement to reflect the number of shares of the legal parent (the accounting acquiree) issued in the reverse acquisition. 5. e 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.")'s proportionate share of the legal subsidiary's (accounting acquirer's) precombination carrying amounts of retained earnings and other equity interests as discussed in paragraphs [805-40-25-2](https://asc.understandingaccounting.org/asc/805/40/#805-40-25-2) and [805-40-30-3](https://asc.understandingaccounting.org/asc/805/40/#805-40-30-3) and illustrated in Example 1, Case B (see paragraph [805-40-55-18](https://asc.understandingaccounting.org/asc/805/40/#805-40-55-18)). #### EPS ##### [805-40-45-3](https://asc.understandingaccounting.org/asc/805/40/#805-40-45-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:24:47.609Z to 2026-09-10T01:24:47.609Z Record version: sha256:49e42d350bc12f4210449f3c72f07f22543920da0db5711a6b767d57f4798e01 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. As noted in (d) in the preceding paragraph, the equity structure in the consolidated financial statements following a reverse acquisition reflects the equity structure of the legal acquirer (the accounting acquiree), including the equity interests issued by the legal acquirer to effect the business combination. ##### [805-40-45-4](https://asc.understandingaccounting.org/asc/805/40/#805-40-45-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:24:47.609Z to 2026-09-10T01:24:47.609Z Record version: sha256:aa2329892f47178d4e24d309a79d533eb6361d2bea13de6dd893cfff015ed780 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In calculating the weighted-average number of common shares outstanding (the denominator of the earnings-per-share \[EPS\] calculation) during the period in which the reverse acquisition occurs: 1. a The number of common shares outstanding from the beginning of that period to the [acquisition date](https://asc.understandingaccounting.org/glossary/a/#acquisition-date "The date on which the acquirer obtains control of the acquiree.") shall be computed on the basis of the weighted-average number of common shares of the legal acquiree (accounting acquirer) outstanding during the period multiplied by the exchange ratio established in the merger agreement. 2. b The number of common shares outstanding from the acquisition date to the end of that period shall be the actual number of common shares of the legal acquirer (the accounting acquiree) outstanding during that period. ##### [805-40-45-5](https://asc.understandingaccounting.org/asc/805/40/#805-40-45-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:24:47.609Z to 2026-09-10T01:24:47.609Z Record version: sha256:3eedbe08c276f030b61920abd5bd24f5a38d91d214b8217fed27f3d818e94c97 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The basic EPS for each comparative period before the acquisition date presented in the consolidated financial statements following a reverse acquisition shall be calculated by dividing (a) by (b): 1. a The income of the legal acquiree attributable to common shareholders in each of those periods 2. b The legal acquiree's historical weighted-average number of common shares outstanding multiplied by the exchange ratio established in the acquisition agreement. 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).