The remainder of the discussion of the carryover method refers to financial statements of the merging entities, rather than a more precise, but longer, phrase such as assets and liabilities that would be recognized in the financial statements of the merging entities if statements are prepared. Use of the shorter phrase is not intended to exclude, for example, an NFP that has not prepared or issued financial statements. In that situation, the phrase refers to the items in the entity's financial records that would be the basis for preparing financial statements.
The new NFP shall recognize in its financial statements the assets and liabilities reported in the separate financial statements of the merging entities as of the merger date in accordance with generally accepted accounting principles (GAAP).
The new NFP does not recognize additional assets or liabilities, such as internally developed intangible assets, that GAAP did not require or permit the merging entities to recognize. However, if a merging entity's separate financial statements are not prepared in accordance with GAAP, those statements shall be adjusted to GAAP before the new entity recognizes the assets and liabilities.
The new NFP shall carry forward at the merger date the merging entities' classifications and designations of their assets and liabilities unless one of the exceptions in the following paragraph applies.
In situation (a) in the preceding paragraph, the new NFP shall classify or designate the asset or liability on the basis of the contractual terms, economic conditions, its operating or accounting policies, and other pertinent conditions as they exist at the date of that modification. In situation (b) in the preceding paragraph, the new NFP shall classify or designate the asset or liability on the basis of the conformed accounting policies at the merger date.
Differences in the application of the acquisition method by a NFP acquirer from the application of the acquisition method by a business entity include all of the following:
- a
The identification of the acquirer in accordance with paragraphs
, instead of the guidance in paragraph
805-10-25-5 - b
The recognition and measurement of goodwill (or the immediate charge to the statement of activities) in accordance with paragraphs
, instead of the guidance in paragraph
805-30-25-1 and paragraphs
- c
The recognition and measurement of an
inherent contribution received in accordance with paragraph
958-805-25-31 and paragraphs
, instead of the guidance for a gain from a bargain purchase in paragraphs
and paragraphs
.
Paragraphs
require identifying the
acquisition date and provide guidance for doing so.
In addition to that guidance, the date on which an NFP acquirer obtains control of an NFP with sole corporate membership generally also is the date on which the acquirer becomes the sole corporate member of that entity.This Subsection includes the following guidance that is incremental to Subtopic
805-20 for the recognition of identifiable assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree:
- a
Recognition conditions
- b
Classifying or designating identifiable assets acquired and liabilities assumed
- c
Additional exceptions to the recognition principle.
An NFP acquirer is not required to classify investments as described in paragraph
805-20-25-7(a).
However, an NFP acquirer that is a health care entity (see Section 954-10-15) shall classify particular investments as described in paragraph 954-805-25-1.This Subsection provides the following limited exceptions to the recognition principle in paragraph
805-20-25-1, which are incremental to the exceptions provided by paragraphs
:
- a
Donor relationships
- b
- c
(P) December 16, 2026; (N) December 16, 2026
105-10-65-10This Subsection provides the following limited exceptions to the recognition principle in paragraph
805-20-25-1, which are incremental to the exceptions
discussed in paragraphs
and related guidance:- a
Donor relationships
- b
- c
An NFP acquirer applies the guidance in this Subsection instead of Subtopic
805-30 for the recognition of the following items:
- a
Goodwill acquired, whether recognized as an asset or as an immediate charge to the statement of activities
- b
- c
An NFP acquirer shall consider all relevant qualitative and quantitative factors in determining the expected nature of the predominant source of support for an acquiree's operations as part of the combined entity. For example, an NFP acquirer shall consider qualitative and quantitative information about all forms of contributed support, including contributions that are precluded from being recognized or are not required to be recognized in the financial statements (such as certain contributed services and collection items and conditional promises to give).
An NFP acquirer shall recognize an inherent contribution received, measured in accordance with paragraph 958-805-30-8, as a separate credit in its statement of activities as of the acquisition date.Example 1 (see paragraphs
) and Example 6 (see paragraphs
) illustrate acquisitions with inherent contributions.
An asset transferred by an NFP acquirer to an unrelated third party as a required condition of an acquisition shall be accounted for as consideration transferred for the acquiree unless the NFP acquirer retains control over the transferred assets. Example 4 (see paragraphs
) illustrates assistance received from a third party.
The consideration transferred may include assets or liabilities of the NFP acquirer that have carrying amounts that differ from their fair values at the acquisition date (for example, nonmonetary assets or a business of the acquirer). If so, the NFP acquirer shall recognize the resulting gains or losses, if any, in the statement of activities. However, sometimes the transferred assets or liabilities remain within the combined entity after the acquisition, and the acquirer therefore retains control of them. An NFP acquirer that retains control over the transferred assets shall not recognize a gain or loss in the statement of activities on assets or liabilities it controls both before and after the acquisition.
The consideration an NFP acquirer transfers in exchange for the acquiree includes any asset or liability resulting from a contingent consideration arrangement. The NFP acquirer shall recognize the contingent consideration as part of the consideration transferred in exchange for the acquiree.