ASC

ASC 805-954

Health Care Entities

805 Business Combinations

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In brief

AdvancedBusiness combinationsNot-for-profitPresentationDisclosure

ASC 805-954 supplements Subtopic 958-805 for not-for-profit, business-oriented health care entities that combine with other NFPs, businesses, or nonprofit activities in a transaction meeting the definition of a merger of not-for-profit entities or an acquisition by a not-for-profit entity. Its incremental rules address classification of acquired debt securities, and—most importantly—whether particular acquisition-related amounts (contingent consideration remeasurements, the separate charge, inherent contributions, step-acquisition gains or losses) are reported within or outside the performance indicator. It also prescribes pro forma performance indicator disclosures for public health care entities.

Key points (7)
  • The Subtopic applies only to not-for-profit, business-oriented health care entities and only to transactions meeting the definition of a merger of not-for-profit entities or an acquisition by a not-for-profit entity (805-954-15-2 through 15-3).
  • Excluded are joint venture formations, acquisitions of assets that are not a business or nonprofit activity, common-control combinations (see Subtopic 805-50), and situations in which the NFP obtains control but does not consolidate under Section 958-810-25 (805-954-15-4).
  • When applying paragraph 805-20-25-6, the acquirer classifies particular acquired investments in debt securities as trading or other than trading securities (805-954-25-1).
  • Changes in the fair value of contingent consideration recognized under 958-805-35-3 are reported within the performance indicator unless the arrangement is a hedging instrument for which Subtopic 954-815 requires recognition outside the performance indicator (805-954-35-1).
  • A separate charge recognized under 958-805-25-29 is presented within the performance indicator, while an inherent contribution received under 958-805-25-31 is within the performance indicator if without donor restrictions and outside it if with donor restrictions (805-954-45-1 through 45-2).
  • In an acquisition achieved in stages, the gain or loss from remeasuring the previously held equity interest is included in the performance indicator, and amounts previously recognized outside the performance indicator are reclassified into that gain or loss at the acquisition date (805-954-45-3).
  • Public not-for-profit, business-oriented health care entities must disclose supplemental pro forma performance indicator information for mergers and acquisitions, including acquiree performance indicator since the acquisition date, prior-comparative-period pro forma amounts, and material nonrecurring pro forma adjustments; if impracticable (as defined in 250-10-45-9), that fact and the reason must be disclosed (805-954-50-1 through 50-3).

For students. The whole point of this Subtopic is display: the recognition and measurement rules come from 958-805, and 805-954 only tells a health care NFP whether an item lands inside or outside the performance indicator. A common mistake is assuming all inherent contributions are within the performance indicator—donor-restricted inherent contributions are presented outside it.

performance indicatormerger of not-for-profit entitiesacquisition by a not-for-profit entityinherent contributioncontingent considerationacquisition achieved in stagessupplemental pro forma informationdonor restrictions

Machine-generated study aid for ASC 805-954. Check the source paragraphs below.

805-954-00Status

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805-954-00-1
The following table identifies the changes made to this Subtopic.
ParagraphActionAccounting Standards UpdateDate
AcquirerAmendedAccounting Standards Update No. 2025-0305/12/2025
AcquirerAddedAccounting Standards Update No. 2010-0701/28/2010
Acquisition DateAddedAccounting Standards Update No. 2010-0701/28/2010
Acquisition by a Not-for-Profit EntityAddedAccounting Standards Update No. 2010-0701/28/2010
BusinessAmendedAccounting Standards Update No. 2017-0101/05/2017
BusinessAddedAccounting Standards Update No. 2010-0701/28/2010
Conduit Debt SecurityAddedMaintenance Update 2014-20 (PDF)09/29/2014
Control of a Not-for-Profit EntityAddedAccounting Standards Update No. 2010-0701/28/2010
Inherent ContributionAddedAccounting Standards Update No. 2010-0701/28/2010
Merger DateAddedAccounting Standards Update No. 2010-0701/28/2010
Merger of Not-for-Profit EntitiesAddedAccounting Standards Update No. 2010-0701/28/2010
Nonprofit ActivityAddedAccounting Standards Update No. 2010-0701/28/2010
Not-for-Profit EntityAddedAccounting Standards Update No. 2010-0701/28/2010
Performance IndicatorAddedAccounting Standards Update No. 2010-0701/28/2010
Public EntityAmendedMaintenance Update 2014-20 (PDF)09/29/2014
Public EntityAddedAccounting Standards Update No. 2010-0701/28/2010
Trading SecuritiesAddedAccounting Standards Update No. 2010-0701/28/2010
Variable Interest EntitySupersededAccounting Standards Update No. 2025-0305/12/2025
954-805-05-1AddedAccounting Standards Update No. 2010-0701/28/2010
954-805-10-1AddedAccounting Standards Update No. 2010-0701/28/2010
954-805-15-1 through 15-4
AddedAccounting Standards Update No. 2010-0701/28/2010
954-805-25-1AmendedAccounting Standards Update No. 2016-0101/05/2016
954-805-25-1AddedAccounting Standards Update No. 2010-0701/28/2010
954-805-35-1AddedAccounting Standards Update No. 2010-0701/28/2010
954-805-45-1 through 45-3
AddedAccounting Standards Update No. 2010-0701/28/2010
954-805-45-2AmendedAccounting Standards Update No. 2016-1408/18/2016
954-805-50-1 through 50-3
AmendedAccounting Standards Update No. 2025-1112/08/2025
954-805-50-1 through 50-3
AddedAccounting Standards Update No. 2010-0701/28/2010
954-805-50-2AmendedAccounting Standards Update No. 2012-0410/01/2012

805-954-05Overview and Background

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805-954-05-1
This Subtopic provides guidance on a transaction or other event in which a not-for-profit, business-oriented health care entity (see Section 954-10-05) that is the reporting entity combines with one or more other not-for-profit entities (NFPs), businesses, or nonprofit activities in a transaction that meets the definition of a merger of not-for-profit entities or an acquisition by a not-for-profit entity.

805-954-10Objectives

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805-954-10-1
The objective of this Subtopic, in combination with the guidance in Subtopic 958-805, is to improve the relevance, representational faithfulness, and comparability of the information that a not-for-profit, business-oriented health care entity provides in its financial reports about a combination with one or more other not-for-profit entities (NFPs), businesses, or nonprofit activities.

805-954-15Scope and Scope Exceptions

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Overall Guidance

805-954-15-1
This Subtopic follows the same scope and scope exceptions as the Overall Subtopic, see Section 954-10-15, with the following exceptions noted below.

Entities

805-954-15-2
The guidance in this Subtopic applies only to not-for-profit, business-oriented health care entities (see Section 954-10-05).

Transactions

805-954-15-3
The guidance in this Subtopic applies to a transaction or other event that meets the definition of either of the following:
  1. a
    A merger of not-for-profit entities
  2. b
    An acquisition by a not-for-profit entity.
805-954-15-4
This Subtopic does not apply to any of the following:
  1. a
    The formation of a joint venture
  2. b
    The acquisition of an asset or a group of assets that does not constitute either a business or a nonprofit activity. (Subtopic 805-50 addresses the typical accounting for an asset acquisition.)
  3. c
    A combination between not-for-profit entities (NFPs), businesses, or nonprofit activities under common control. (Subtopic 805-50 addresses the typical accounting for a transfer of assets or an exchange of shares between entities under common control.)
  4. d
    A transaction or other event in which an NFP obtains control of a not-for-profit entity but does not consolidate that entity, as permitted or required by Section 958-810-25. Similarly, this Subtopic does not apply if an NFP that obtained control in a transaction or other event in which consolidation was permitted but not required decides in a subsequent annual reporting period to begin consolidating a controlled entity that it initially chose not to consolidate.

805-954-25Recognition

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805-954-25-1
When applying the guidance in paragraph 805-20-25-6, an acquirer that is a not-for-profit, business-oriented health care entity shall classify particular investments in debt securities as trading securities or other than trading securities.

805-954-35Subsequent Measurement

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805-954-35-1
An acquirer that is a not-for-profit, business-oriented health care entity shall report the changes in the fair value of contingent consideration recognized in accordance with paragraph 958-805-35-3 within the performance indicator unless the arrangement is a hedging instrument for which Subtopic 954-815 requires the entity to recognize the changes outside the performance indicator.

805-954-45Other Presentation Matters

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805-954-45-1
If an acquirer is a not-for-profit, business-oriented health care entity and a separate charge is recognized in accordance with paragraph 958-805-25-29, it shall be presented within the performance indicator.
805-954-45-2
If an acquirer is a not-for-profit, business-oriented health care entity, whether the inherent contribution received recognized in accordance with paragraph 958-805-25-31 is presented within or outside of the performance indicator depends on whether the contribution is without donor restrictions or with donor restrictions. A contribution without donor restrictions shall be presented within the performance indicator. A contribution with donor restrictions shall be presented outside of the performance indicator.
805-954-45-3
In an acquisition achieved in stages (see paragraphs
805-10-25-9 through 25-10
), an acquirer that is a not-for-profit, business-oriented health care entity shall include in its performance indicator the gain or loss resulting from remeasuring its previously held equity interest in the acquiree. In prior reporting periods, that acquirer may have recognized changes in the value of its equity interest in the acquiree outside the performance indicator (for example, because the investment was classified as other than trading). If so, the amount that was recognized outside the performance indicator shall be reclassified and included in the calculation of gain or loss on the previously held equity interest as of the acquisition date.

805-954-50Disclosure

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805-954-50-1
For a merger of not-for-profit entities, a new entity that is both a not-for-profit, business-oriented health care entity and a public entity shall disclose the performance indicator for the current reporting period as though the merger date had been the beginning of the annual reporting period (supplemental pro forma information).
Transition date:(P) December 16, 2027; (N) December 16, 2028Transition guidance:
270-10-65-1For a merger of not-for-profit entities, a new entity that is both a not-for-profit, business-oriented health care entity and a public entity shall disclose in interim and annual reporting periods the performance indicator for the current reporting period as though the merger date had been the beginning of the annual reporting period (supplemental pro forma information).
805-954-50-2
For an acquisition by a not-for-profit entity, a not-for-profit, business-oriented health care entity that is a public entity shall disclose all of the following:
  1. a
    The performance indicator attributable to the acquiree since the acquisition date that is included in the statement of activities for the reporting period.
  2. b
    The performance indicator as though the acquisition date for all acquisitions that occurred during the current year had occurred the beginning of the annual reporting period (supplemental pro forma information).
  3. c
    If the acquirer presents comparative financial statements, the performance indicator as though the acquisition date for all acquisitions that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period (supplemental pro forma information). For example, for a calendar year-end entity, disclosures would be provided for an acquisition by a not-for-profit entity that occurs in 20X2, as if it occurred on January 1, 20X1. Such disclosures would not be revised if 20X2 is presented for comparative purposes with the 20X3 financial statements (even if 20X2 is the earliest period presented).
  4. d
    The nature and amount of any material, nonrecurring pro forma adjustments directly attributable to the acquisition(s) included in the reported pro forma performance indicator (supplemental pro forma information).
Transition date:(P) December 16, 2027; (N) December 16, 2028Transition guidance:
270-10-65-1For an acquisition by a not-for-profit entity, a not-for-profit, business-oriented health care entity that is a public entity shall disclose all of the following in interim and annual reporting periods:
  1. a
    The performance indicator attributable to the acquiree since the acquisition date that is included in the statement of activities for the reporting period.
  2. b
    The performance indicator as though the acquisition date for all acquisitions that occurred during the current year had occurred the beginning of the annual reporting period (supplemental pro forma information).
  3. c
    If the acquirer presents comparative financial statements, the performance indicator as though the acquisition date for all acquisitions that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period (supplemental pro forma information). For example, for a calendar year-end entity, disclosures would be provided for an acquisition by a not-for-profit entity that occurs in 20X2, as if it occurred on January 1, 20X1. Such disclosures would not be revised if 20X2 is presented for comparative purposes with the 20X3 financial statements (even if 20X2 is the earliest period presented).
  4. d
    The nature and amount of any material, nonrecurring pro forma adjustments directly attributable to the acquisition(s) included in the reported pro forma performance indicator (supplemental pro forma information).
805-954-50-3
If the disclosure of any of the information required by paragraph 954-805-50-2 or paragraph 954-805-50-1 is impracticable, a not-for-profit, business-oriented health care entity shall disclose that fact and explain why the disclosure is impracticable. The term impracticable has the same meaning as impracticability in paragraph 250-10-45-9.
Transition date:(P) December 16, 2027; (N) December 16, 2028Transition guidance:
270-10-65-1If the disclosure of any of the information required by paragraph 954-805-50-2 or paragraph 954-805-50-1 is impracticable, a not-for-profit, business-oriented health care entity shall disclose in interim and annual reporting periods that fact and explain why the disclosure is impracticable. The term impracticable has the same meaning as impracticability in paragraph 250-10-45-9.

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