# ASC 805-958-55: Business Combinations — Not-for-Profit Entities — 55 Implementation Guidance and Illustrations Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/805/958/#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): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:88d4afa5cabd0a8b5b9a3518d406a2e2989dc682f1e3f9d5577bb7a34f3b07b2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 805-958-55: 55 Implementation Guidance and Illustrations [Read section](https://asc.understandingaccounting.org/asc/805/958/#55-implementation-guidance-and-illustrations) SEC content: no #### Implementation Guidance ##### [805-958-55-1](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:c8dada3a1e8e184b2da33740e506ad630f4cb42049b0268dee9f4b433bfcb936 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This implementation guidance addresses the application of the definitions [merger of not-for-profit entities](https://asc.understandingaccounting.org/glossary/m/#merger-of-not-for-profit-entities "A transaction or other event in which the governing bodies of two or more not-for-profit entities cede control of those entities to create a new not-for-profit entity.") and [acquisition by a not-for-profit entity](https://asc.understandingaccounting.org/glossary/a/#acquisition-by-a-not-for-profit-entity "A transaction or other event in which a not-for-profit acquirer obtains control of one or more nonprofit activities or businesses and initially recognizes their assets and liabilities in the acquirer's financial statements. When applicable guidance in Topic 805 is applied by a not-for-profit entity, the term business combination has the same meaning as this term has for a for-profit entity. Likewise, a reference to business combinations in guidance that links to Topic 805 has the same meaning as a reference to acquisitions by not-for-profit entities.") in making the determination required by paragraph [958-805-25-1](https://asc.understandingaccounting.org/asc/805/958/#805-958-25-1) as to whether a transaction is a merger or an acquisition. Ceding control to a new NFP is the sole definitive criterion for identifying a merger, and one entity obtaining control over the other is the sole definitive criterion for an acquisition. If the participating entities in a combination retain shared [control](https://asc.understandingaccounting.org/glossary/c/#control "The direct or indirect ability to determine the direction of management and policies through ownership, contract, or otherwise.") of the new [not-for-profit entity](https://asc.understandingaccounting.org/glossary/n/#not-for-profit-entity "An entity that possesses the following characteristics, in varying degrees, that distinguish it from a business entity: Contributions of significant amounts of resources from resource providers who do not expect commensurate or proportionate pecuniary return Operating purposes other than to provide goods or services at a profit Absence of ownership interests like those of business entities. Entities that clearly fall outside this definition include the following: All investor-owned entities Entities that provide dividends, lower costs, or other economic benefits directly and proportionately to their owners, members, or participants, such as mutual insurance entities, credit unions, farm and rural electric cooperatives, and employee benefit plans.") (NFP), they have not ceded control. To qualify as a new NFP, the combined entity must have a newly formed governing body; a new NFP often is, but need not be, a new legal entity. The formation of a new NFP is not a pertinent factor in assessing whether one entity has obtained control over another. ##### [805-958-55-2](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:6ec7ccaccb5ce53f5b539c289e21e592dbb5c79c0ce6320e1a51eff14056e6a2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Other transaction-specific characteristics can help in determining whether a particular combination is a merger, an acquisition, or another form of combination, such as the formation of a joint venture. The other characteristics, discussed in paragraphs [958-805-55-3 through 55-8](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-3) , are indicators that often may help in identifying a merger. The participating entities should consider all of those characteristics and any other pertinent factors. Based on the preponderance of the evidence, the parties must make a professional judgment about whether each of the governing bodies has ceded control of those entities to create a new NFP, whether one entity has acquired the other, or whether another form of combination, such as the formation of a joint venture, has occurred. ##### [805-958-55-3](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:65974708bceca9f4a7a7734a248eecf9168fee6176f4ee47077f4792e75f93b4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Determining whether each of the governing bodies of the entities participating in a combination cede control of those entities to a new NFP requires assessing the characteristics of all of the following: 1. a The process leading to the combination 2. b The participants to the combination 3. c The combined entity. ##### [805-958-55-4](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:8c427f1fad4e446b800bc733c76e081ff6481e828068de1c30cd4d5a0965d6a1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In a merger, generally no one party dominates or is capable of dominating the negotiations and process leading to the formation of the combined entity. In an acquisition, on the other hand, one party—the acquirer—often dominates that process, and sometimes may in effect dictate the terms of the transaction, including the date the combination occurs. ##### [805-958-55-5](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:401661573850abac6a163139c531cfb968e9b5f51237805ae63439229aceac1e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The characteristics of the entities participating in a combination and of the resulting combined entity that can help to distinguish between a merger and an acquisition fit into the following two groups: 1. a Governance and related control powers 2. b Financial capacity. ##### [805-958-55-6](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-6) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:ade4569625273d56008d0779a312030cccb0e3754c7c2f5175d12a7010ee9bfc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For example, one entity appointing significantly more of the governing board of the newly formed entity, retaining significantly more of its key senior officers, or retaining its bylaws, operating policies, and practices substantially unchanged is more likely to be a feature of an acquisition than of a merger. Similarly, the relative financial strength and relative size of the participants in the combination may help to determine whether one participant is able to dominate the process leading to the combination. For example, if one entity is financially strong and the other is experiencing financial difficulty, the stronger entity may be able to dominate the transaction, which would indicate that the transaction is an acquisition rather than a merger. Similarly, a participant that is substantially larger than each of the others in terms of revenues, assets, and net assets may be able to dominate the transaction. However, relative size, like relative financial strength and the other indicators discussed, is only one characteristic that may help to distinguish between a merger and an acquisition in particular situations—none of the indicators, by itself, is determinative. As discussed in paragraph [958-805-55-1](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-1), ceding of control is the sole definitive criterion for a merger. ##### [805-958-55-7](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-7) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:199aef4290818babb9a96df9224e23041c03fc44732f8125abb5b5dd717e283e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Unlike an acquisition by a not-for-profit entity, a merger generally is accomplished by combining all of the assets and liabilities of the merging entities into a newly formed entity that assumes all of the assets and liabilities of the participating entities without a transfer of cash or other assets to those entities or any of their owners, members, sponsors, or other designated beneficiaries. Also, unlike the formation of a joint venture in which the venturers continue to exist and usually hold a financial interest, the creators of the merged entity cease to exist as autonomous entities and no one holds financial interests in the merged entity. Moreover, the merged entity generally has a perpetual life rather than a life that is limited by the period of the venture or that allows for one or more of the participating entities to opt out of the venture or other arrangement. ##### [805-958-55-8](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-8) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:94a647818b161235a5bb4d7f84ef26152bbfba8db4ba4a8a2a2a2987a91378dc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A particular combination of business entities may seem similar in some aspects to a merger of not-for-profit entities. For example, a new entity may be formed to effect 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."), and no consideration is exchanged in some business combinations. Nevertheless, the guidance in this Subtopic on mergers does not apply in a business combination, and it shall not be applied by analogy. #### Illustrations ##### [805-958-55-9](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-9) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:adf62e5458b6a8b0ac86f8b1aabdadcf65618a2032500150d711523bb8959697 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example has two Cases, which share the assumptions in paragraphs [958-805-55-10 through 55-14](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-10) . The Cases illustrate the application of paragraph [958-805-25-1](https://asc.understandingaccounting.org/asc/805/958/#805-958-25-1), which requires an NFP to determine whether a transaction or other event is a merger or acquisition, and the related implementation guidance in paragraphs [958-805-55-1 through 55-8](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-1) . The Cases are: 1. a A combination that is a merger (Case A) 2. b A combination that is neither a merger nor an acquisition (Case B). ##### [805-958-55-10](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-10) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:683a219327dd5d58a0773433c3ab53b4787d02349580682c88b1bbbaab01de96 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A community foundation that is a major grantor to social service entities in its metropolitan area begins a program to encourage its grantees to consider opportunities to improve their services through collaborative arrangements, including mergers, acquisitions, and joint ventures. In January 20X9, the community foundation convenes a meeting of the chief officers and chairpersons of several charities that provide complementary and, to some extent, overlapping services within its metropolitan area. Following that meeting, representatives of Charity A and Charity B see fruitful opportunities for collaborative efforts based on their geographic proximity and service areas; similar missions, programs, and operating practices; and complementary financial strengths with one having a much larger base of current contributors and unpaid volunteers and the other having a larger endowment and base of investment income. Charity A is 30 to 40 percent larger than Charity B in terms of most individual financial measures, including revenues and the fair value of assets and net assets. ##### [805-958-55-11](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-11) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:418f74ea6bea8f60c03204c6ead2d6ab49ba20c3343c6a12c96928d99805b81d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In February 20X9, the governing boards of Charity A and Charity B authorize the formation of an exploratory committee to recommend whether the two charities should combine and, if so, to develop a plan for implementing a combination. The committee consists of three members from Charity A and the executive director and one additional member from Charity B, with administrative support from the legal counsel of each entity. Each of the five committee members has one vote, and a recommendation of the committee requires at least four votes of the members. Its recommendation is to be accompanied by the reasons underlying both the recommendation of the committee and any dissenting votes. ##### [805-958-55-12](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-12) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:f2707c3a1de337d8ca82901ecdfc1ead3e394077a613053f960ce22aedb34c3a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In July 20X9, after completing its discussions, the committee recommends, with the full support of all five of its members, that Charity A and Charity B combine under an agreement with the following key provisions: 1. a A new NFP named Charity AB is to be formed. 2. b The chief executive officer of Charity B will be offered the position of chief executive officer of Charity AB for a term of at least two years. 3. c The initial Board of Charity AB will consist of 15 members. Charity A will appoint 9 of the initial members, preferably from the members of its existing 25-member board and its current chief executive officer. Charity B will appoint 6 of the initial members, preferably from its existing 50-member board. 4. d The charter of Charity AB will provide for a maximum of 25 board members. The committee recommended that a search be undertaken to add 6 new members within a year, with each new member requiring approval by a minimum of 10 of the 15 initial members. 5. e The headquarters of Charity A and its underlying lease (which has eight remaining years) will be retained. 6. f A transition committee consisting of two members each from the current boards of Charity A and Charity B, under the authority of the chief executive officer of Charity AB, will be appointed to perform the following duties: 1. 1 Submit a formal plan of merger to each of the governing boards and, if approved, seek approval from the appropriate state authorities. 2. 2 Seek opportunities to sublease the headquarters space of Charity B for the remaining two-year lease term or to utilize that space for program activities. 3. 3 Interview existing staff and other candidates for senior management positions. 4. 4 Make recommendations about each of the following: 1. i Eliminating program and operating redundancies, including severance packages for any terminated staff. 2. ii Improving the current operating policies and practices of Charity A and Charity B. 3. iii Revising employee benefit plans with the objective of adopting unified plans for Charity AB's employees without diminishing the overall benefits being offered to existing employees. ##### [805-958-55-13](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-13) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:395e277a03b8df797aee39c8cd153a87a16af4380fb290587a24cb47849db591 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In discussing revisions of employee benefit plans, the exploratory committee's report notes that the committee interviewed the current chief executive officers of Charity A and Charity B and found both well qualified to serve as the chief executive officer of Charity AB. However, although both chief executive officers are in their early 60s and are eager to assist Charity AB through the initial transition period, the chief executive officer of Charity A had been contemplating retiring within the next year. The committee saw no need to open the chief executive officer search to other candidates. ##### [805-958-55-14](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-14) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:34d56efc50c3adfcff5ff942a7da6cddd3337266c0cc6f186d4ae3cf80bd8a0a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. During August 20X9, each of the governing boards of Charity A and Charity B tentatively approves the committee recommendations and appoints its members to the recommended transition committee. The boards also asked their respective nominating committees to make recommendations to each of their boards about the initial members to be appointed to the board of Charity AB. During October, each board approved the plan for their combination, and it was submitted to the state for approval. During November, the plan received the required state approval, and the combination became effective on January 1, 20X0, as proposed. ##### [805-958-55-15](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-15) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:a4d9a69892c52b964d62a1fd738c50c143ff504cf197a6029550268057bef834 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In this Case, the executive committee recommends (and each of the governing boards of Charity A and B approves) that to minimize costs the corporate charter of Charity A is to be retained as the charter of Charity AB. The assets and liabilities of Charity B are to be transferred to Charity AB and Charity B will cease to exist. On the date the merger becomes effective (as approved by the appropriate state official), the corporate charter will be amended to reflect the new NFP's name and its expanded mission, which is to encompass Charity B's research and advocacy functions as well as the charitable functions of both entities. Thus, in effect, both Charity A and Charity B will cease to exist in their precombination forms. ##### [805-958-55-16](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-16) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:e10fd68a8e2e44ae258e769d74de4520c02bc44b5de3c71032ceb87a55a125b5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [958-805-55-4](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-4) describes the assessments required when determining whether each of the governing bodies of the participating entities in a combination cedes control of those entities to a new NFP. On the basis of the evidence, both Charity A and Charity B participated in the process leading to the combination. Moreover, the evidence indicates that neither charity was experiencing financial difficulties or other circumstances that might allow the other entity to dominate the negotiations leading to and through the approval of the transaction by both charities. Neither charity appointed significantly more of Charity AB's initial governing board. Although the chief executive officer of Charity B is the only key senior officer for which a retention decision has been made, neither charity dominated the selection process of the governing board and senior management, collectively. Lastly, although the corporate charter and bylaws of Charity A were retained, the stated mission of Charity AB includes the operating objectives of Charity B. In addition, the bylaws and operating policies and practices of Charities A and B were similar. Thus, on the basis of the preponderance of the evidence, it is determined that the combination is a merger—that the governing boards of Charity A and Charity B each ceded control to the new NFP, Charity AB, which has a newly formed governing body. ##### [805-958-55-17](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-17) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:28515f5a84e456cc3326442ae7c2dd581d487082cc6187fe9eaa4fb18f017790 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In this Case, Charity AB is established as a new legal entity with its own charter. Charity A and Charity B will each continue to exist with its current governing body but cease to operate its existing programs. Each has the power to veto nominations for future members of Charity AB's governing body for two years. Each will retain $200,000 in operating cash and all of the investment assets of its donor-restricted endowment funds. ##### [805-958-55-18](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-18) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:6c814d283e74d1d6409591cdcc4560dad0f23aef267e3e997c88d87da30ae6cd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Charity A and Charity B each have the right to dissolve Charity AB. If the right is exercised, it will result in a reversion of assets, liabilities, and staff. Upon reversion, all staff will be retained by their respective legacy entity. In addition, the assets and liabilities of Charity AB will be transferred to each legacy entity in a distribution ratio equivalent to the fair value of the net assets contributed by each (which was determined to be about 65:35 at the combination date). Two years following the combination date, Charity A and Charity B will dissolve and transfer their remaining assets to Charity AB unless either exercises its right of withdrawal. ##### [805-958-55-19](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-19) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:4bd1737ba5d91c023cd9f143b5264af69cddd01babc2a584bc55c263051d7a0a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In this Case, it appears that Charity A and Charity B may intend to combine after the passage of a two-year period. But neither of their governing boards has ceded control, as defined, and neither entity has obtained control of the other. Therefore, the combination is neither a merger nor an acquisition; rather, on the basis of the preponderance of the evidence, it appears that Charity AB is a joint venture of Charity A and Charity B. ##### [805-958-55-20](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-20) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:d809e877010a528288f01e40def12742e12cd67b8eb1cb902e986d18dae65f3f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Charity C provides health and human services to residents of City and two adjoining counties, referred to as Metro Area, a substantial portion of which is provided through its support to grantee agencies in its area. Charity D provides health and human services to residents of County, which adjoins the northern part of Metro Area. The charities share a common mission and operate under the same national brand name; that is, the charities operate as Brand Name of Metro Area and Brand Name of County. Each charity receives contributions from the residents of its service area. ##### [805-958-55-21](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-21) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:f12aa8776c794c95dfd3fe5bd8d84571718084c622d5ec92eae5e1655ed6724a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In 20X1, the regions served by both charities were experiencing sharp economic declines, and contributions to both charities were declining as a result. To create efficiencies, the charities entered into two joint operating agreements. Under the first agreement, they conduct joint annual fundraising campaigns. Under the second, Charity C provides all information technology and marketing services to Charity D for a nominal fee. ##### [805-958-55-22](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-22) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:01be03c52dc9d54687244e30f7668f5a40aadfd14b39120ecefd31ca1c9c55b0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. By January 20X4, Charity D has successfully implemented three innovative program services, but it has not been able to improve its declining contribution revenues. Despite some staff layoffs, it continues to experience significant operating deficits. In March 20X4, the chief executive officers of the two charities encouraged their respective executive committees to explore opportunities to combine and restructure their operations and governance. In July 20X4, the executive committees of both charities formed a joint strategy committee to investigate opportunities to create the best charity for the combined service area and to develop recommendations for accomplishing that objective. ##### [805-958-55-23](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-23) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:8aa6e352842c2a436f286755380901569ad1fb957db80f5319db04224f3ea838 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The strategy committee members include the chief executive officers and 6 directors from each charity and 10 community leaders from the area. It is chaired by the chief executive officer of a major corporation in the area who also is a director of Charity C. In January 20X5, although the strategy committee's work was ongoing, the executive committees of both charities unanimously approved and advanced to the full governing board of each charity the committee's recommendations for the governance model for a new charity to be formed by consolidating and dissolving both of the existing charities and its recommendations for the new charity's name, mission, vision, and business model. That business model is the same as the model Charity D had adopted in 20X2, under which it successfully implemented three new programs. Charity C wanted to leverage the experiences of Charity D. ##### [805-958-55-24](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-24) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:b343c7a8bd49a04e30451e01c7ebf309f41b876df9c8a18b0071b4ea2c10180b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. On November 1, 20X5, the governing boards of both charities approved the strategy committee's plan of consolidation. The chief executive officers of both charities executed a joint memorandum of understanding, which includes the following statements: 1. a The charities will create a new NFP named Charity E upon completing the due diligence process and obtaining approvals of the state authorities and Internal Revenue Service (IRS) qualification as a tax exempt public charity, which will be concluded no later than December 31, 20X5. Charity E incorporates Charity C's name into its own. 2. b The bylaws of Charity E will establish a board of directors of up to 30 members. 3. c The board of directors of Charity C will nominate 15 of the initial members of the board of Charity E. (All 15 nominees selected were current members of the board of directors of which 13 were also members of the executive committee.) The board of directors of Charity D will nominate five of the initial members. 4. d Charity E will have four local community committees representing four geographic areas, one of which is County. Each committee will provide advice to the board of directors for local decision-making consistent with Charity E's mission and vision. At each election after the installation of the initial board, each local community committee may nominate up to four candidates for a one-year renewable term on the board of Charity E. The board will select a minimum of two members from each local community committee, for a total of eight additional members. 5. e Amendments to the articles of incorporation or bylaws, significant transactions (a merger, reorganization, termination, or sale of substantially all assets), and reductions in the authority and responsibilities of local community committees will require an affirmative vote of at least 60 percent of the board of directors. 6. f Each charity's board of directors will appoint five members to a joint transition committee, with the charge of and authority to implement the plan of consolidation. 7. g Until the consolidation is complete, each charity's board of directors agrees to do the following: 1. 1 Use reasonable efforts to conduct their activities consistent with their current mission allowing for changes consistent with moving to the business model, mission, and vision of Charity E. 2. 2 Preserve their tax-exempt status and relationships with contributors and grantee agencies. 3. 3 Not materially amend or modify their articles of incorporation or bylaws. 8. h During the first three years after the combination, Charity E will do the following: 1. 1 Use the business model (direct-services based) to increase its capacity for making sustained change to address key social needs. 2. 2 Fund and maintain no less than four geographic sites, with one in County, to allow for community involvement in campaign, community impact programs, marketing, and public policy. 3. 3 Fund and maintain the financial and program commitments of both of the consolidating charities to their respective grantee agencies, subject to available funding. 4. 4 Strive to expand Brand Name program of Charity D and its strategies throughout Charity E's service area. Given the success of that program, its current staff will be given full opportunity and consideration to lead the Brand Name program for Charity E. 5. 5 Not reduce significantly the current staff of the charities. It is understood that reassignments or realignments are probable. Any reductions of the staff of Charity D will be made in consultation with its former chief executive officer, who will become the vice president for program services and strategic development of Charity E. 9. i The obligations of Charity D, which are outlined in the memorandum of understanding, are subject to approval by its board of directors. The obligations of Charity C, which also are outlined in the memorandum of understanding, are subject to approval by its executive committee. ##### [805-958-55-25](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-25) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:0499a981564173819457c6921c99baa5cdc269a8c9d319e52d4b418cca27d387 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table summarizes certain facts for each of the combining charities and the initial staffing of the combined Charity E. - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-5FEF5D91-7E8E-4AE0-8AD1-7A832E8FACFB-low.gif) Charity C Charity D Financial—years ended 20X5 and 20X4: $ millions $ millions Revenues $45 $46 $30 $37 Expenses 42 42 37 38 Net excess (deficit) 3 4 (7) (1) Net assets—carrying amount 70 67 13 20 Employee head count 119 120 90 90 Joint operating agreements: Fund raising—net revenue sharing ratio 65% 35% "Information technology and marketing provided by Charity C" " receives nominal fee, pays all costs " " pays nominal fee " Governance: Members of board of directors 80 50 Members of executive committee 20 16 Staffing of Entity E: Senior officers of Entity E: President former chief executive officer Vice president strategic relations former chief executive officer Chief financial officer former chief financial officer "VP public policy (vacant, being recruited)" ##### [805-958-55-26](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-26) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:820a50076ad5c3e75e1d2bcae470f537dc53ea4d2bf40a9b80d61ba9fff929b3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Some factors in this Example might suggest that the combination is a merger. For example, the evidence indicates that each charity participated in the process leading to the combination. That is, their governing boards both approved the formation of the strategy committee, both were represented on that committee, and both had the opportunity to accept or reject the recommendations of the committee. In addition, the legal dissolution of both charities to form Charity E resulted in a new NFP with a newly formed governing body, to which the governing boards of both charities ceded control of their operations and net assets, at least in legal form. ##### [805-958-55-27](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-27) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:3396fd90958638e663d1711740ef2dc775ce620b27a1970c0973ebfa4df85530 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. However, other factors indicate that one charity acquired the other, that is, that the governing board of the financially stronger and larger Charity C dominated the terms of the combination and did not, in substance, cede control of its operations and net assets to the governing board of Charity E. Those factors include the following: 1. a Charity C's dominance in the selection of 15 of the 20 members of the initial board of directors of Charity E. It also seems that the governing power center of Charity C—its executive committee—continues to control because 13 of its members continued as members of the initial 20-member board of Charity E and, together with the other 2 board members from that charity, would have a strong (if not dominating) voice in selecting at least 6 of the minimum of 8 members yet to be selected from the nominees of the 4 local community committees. 2. b Charity C's dominance in the selection of the key senior officers. The table in paragraph [958-805-55-25](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-25) indicates that early on it was decided that the chief executive officer of Charity C would be retained as chief executive officer and president of Charity E, that the chief executive officer of Charity D of County would become one of Charity E's vice presidents, and that there was no need to open the chief executive officer search process to external parties. 3. c Charity C's dominance in terms of financial capability and viability. Charity D has been experiencing financial difficulties and since 20X1 has been somewhat dependent on Charity C to provide back-office and information technology support for a below-cost fee. ##### [805-958-55-28](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-28) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:6d9f9c5175df1081dc786c31e8156a04ea926685f279c4c48e391f2f67fa7e1d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In addition, it appears that Charity C wanted to preserve and obtain certain aspects of Charity D's operations and resources, including the following: 1. a Charity D's expertise in implementing new programs developed and promoted by the national entity 2. b Charity D's existing donor relationships 3. c Charity D's residual net assets. ##### [805-958-55-29](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-29) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:d97bd996d40920b880b4cf6bf8c0de5b5179fcd7323857640379dc5630f1f138 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Charity C also apparently wanted to restructure its governance to have a much smaller governing board of 20 to 30 high-impact community leaders (like the members of its existing executive committee). Charity C's wishes concerning aspects of Charity D's operations and resources and restructuring its governance do not relate directly to the indicators that help to distinguish a merger from an acquisition. But those additional factors are part of what is considered in making a judgment on the basis of the preponderance of the evidence, as this Subtopic requires. ##### [805-958-55-30](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-30) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:18a6d51181e70b7a4a92856865dbc6b6410b117e7d36dce60722afe4000d2aa6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. On the basis of the preponderance of the evidence, it is determined that Charity C acquired Charity D. The acquisition was achieved by, in effect, a gift of Charity D to Charity C. Although each charity legally dissolved, the substance of the combination is much the same as if Charity C first restructured its board of directors along the lines desired and then absorbed Charity D and added five of its nominees to the restructured board. ##### [805-958-55-31](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-31) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:c803312cd19e8f47e2b21214fdb11e29dc74d94a234b18e7b96ca64906fd3d8a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Despite the process and legal form used, the economic substance of the transaction is judged to be one in which the central governing power residing in the executive committee of Charity C was not surrendered; that is, the governing body of Charity C did not cede control of the entity to the governing body of Charity E. The transaction is an acquisition in which the economic substance and existence of Charity C (the acquirer) continues, although with a different name and expanded operations. ### Merger of Not-for-Profit Entities ##### [805-958-55-32](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-32) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:c21b53caba38f72e55ebb04ad8311b5ffa016a4534ab09b35edeedbf4a61adbd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates some of the disclosures required for a [merger of not-for-profit entities](https://asc.understandingaccounting.org/glossary/m/#merger-of-not-for-profit-entities "A transaction or other event in which the governing bodies of two or more not-for-profit entities cede control of those entities to create a new not-for-profit entity.") in paragraphs [958-805-50-1 through 50-6](https://asc.understandingaccounting.org/asc/805/958/#805-958-50-1) . The Example assumes that three [not-for-profit entities](https://asc.understandingaccounting.org/glossary/n/#not-for-profit-entity "An entity that possesses the following characteristics, in varying degrees, that distinguish it from a business entity: Contributions of significant amounts of resources from resource providers who do not expect commensurate or proportionate pecuniary return Operating purposes other than to provide goods or services at a profit Absence of ownership interests like those of business entities. Entities that clearly fall outside this definition include the following: All investor-owned entities Entities that provide dividends, lower costs, or other economic benefits directly and proportionately to their owners, members, or participants, such as mutual insurance entities, credit unions, farm and rural electric cooperatives, and employee benefit plans.") (NFPs) merge to create a new NFP. NFP F, NFP G, and NFP H merge to create NFP I, which is a [public entity](https://asc.understandingaccounting.org/glossary/p/#public-entity "A business entity or a not-for-profit entity that meets any of the following conditions: It has issued debt or equity securities or is a conduit bond obligor for conduit debt securities that are traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local or regional markets). It is required to file financial statements with the Securities and Exchange Commission (SEC). It provides financial statements for the purpose of issuing any class of securities in a public market."). ##### [805-958-55-33](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-33) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:0a7e028b949cdadfe8cca273b1c2360bdc6ae386264856375bcf71e76bbd9bc1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Although this Example presents the illustrative notes separately, NFP I might present the disclosures illustrated in a single note. The required supplemental information is presented in a separate schedule outside the notes. This Example illustrates the following disclosures: 1. a Description of the merger 2. b Significant asset not required to be recognized 3. c Conforming accounting policies 4. d Major classes of assets, liabilities, and net assets 5. e Required supplemental information. ##### [805-958-55-34](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-34) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:be1b7e94b5c0f3e9f8018e64888ce9f083427b063d298c8c89a33d193623ebc5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following note illustrates the disclosures required by paragraphs [958-805-50-2(a) through (c)](https://asc.understandingaccounting.org/asc/805/958/#805-958-50-2). - NFP I was formed on June 15, 20X1, as the result of a merger of three local not-for-profit entities—NFP F, NFP G, and NFP H. All three entities shared the common mission of supporting youth education. Through their merger, the entities seek to further their common mission by substantially improving their after-school youth programs in the region and their capability to assist youth in need. They also seek to achieve economies of scale and other synergies through integrating their services. ##### [805-958-55-35](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-35) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:dd4b03ff9b33702d3b667376029eeef1a08d99d778199204856028c8b343cd07 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following note illustrates the disclosures required by paragraph [958-805-50-2(d)(2)](https://asc.understandingaccounting.org/asc/805/958/#805-958-50-2). - At June 15, 20X1, NFP F had a conditional promise receivable of $1.4 million from a donor to be used to construct a new after-school youth facility. The promise is conditioned upon NFP F raising an equivalent amount from others by the end of 20X4 to be used for construction of the facility. At the merger date, NFP F had raised $420,000. NFP I expects to successfully raise the remaining amount by the end of 20X4. ##### [805-958-55-36](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-36) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:1fff47e77fc71a63eee7fcddaef8186f13a00705b385b96dd2cb9fd75acb0e55 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following note illustrates the disclosure required by paragraph [958-805-50-2(e)](https://asc.understandingaccounting.org/asc/805/958/#805-958-50-2). - NFP G and NFP H have a policy to report donor-restricted contributions whose restrictions are met in the same reporting period as support within net assets without donor restrictions. NFP F reports donor-restricted contributions whose restrictions are met in the same reporting period as donor-restricted support and subsequently releases the donor-restricted net assets when the restrictions are met. NFP I has conformed its policy to that of NFP G and NFP H. The accounting policy difference affects only the statement of activities; thus, no adjustment to the opening balance of NFP I's net asset classes is necessary. ##### [805-958-55-37](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-37) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:b25b3f79bafed56ca994e3d3715ce7751877962610ebfaac187ed09b26da670f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following note illustrates the disclosures required by paragraph [958-805-50-2(d)](https://asc.understandingaccounting.org/asc/805/958/#805-958-50-2). - ![](https://asc.understandingaccounting.org/asc-img/GUID-64D226F2-F0C8-44C5-8B62-5DC8AAD5CB64-low.gif) "Major Classes of Assets June 15, 20X1" (amounts in thousands) Adjustments NFP F NFP G NFP H Debit Credit Total (NFP I) Assets Cash and short-term investments " $4,127 " " $7,213 " " $3,179 " - - " $14,519 " Contributions receivable " 3,053 " " 5,102 " " 2,696 " - - " 10,851 " Allowance for uncollectibles (295) (524) (157) - - (976) "Contributions receivable, net" " 2,758 " " 4,578 " " 2,539 " - - " 9,875 " "Land, buildings, and equipment" " 43,337 " " 59,021 " " 15,875 " - - " 118,233 " "Accumulated depreciation" " (8,458)" " (9,935)" " (1,990)" - - " (20,383)" "Land, buildings, and equipment, net" " 34,879 " " 49,086 " " 13,885 " - - " 97,850 " "Long-term investments" " 54,987 " " 108,234 " " 42,004 " - - " 205,225 " Liabilities - - Accounts payable and accrued expenses " 3,128 " " 6,412 " " 3,333 " - - " 12,873 " Grants payable " 2,893 " " 3,765 " " 2,232 " - - " 8,890 " Long-term debt " 32,980 " " 45,190 " " 18,556 " - - " 96,726 " Net assets With donor restrictions "48,834" "86,409" "28,895" - - "164,138" Without donor restrictions " 8,916 " " 27,335 " " 8,591 " - - "44,842" Total net assets " $57,750 " " $113,744 " " $37,486 " - - " $208,980 " ##### [805-958-55-38](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-38) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:b6afa5dab2c6798e128cf881d0cc2bb6fadf08f11380da6c8d8b15928d5588c3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following supplemental information is required by paragraph [958-805-50-3](https://asc.understandingaccounting.org/asc/805/958/#805-958-50-3). If NFP I presents comparative financial information in the annual reporting period following the year in which the merger occurs, the supplemental pro forma information would be presented in the financial report of that year as well. - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-88C99FEA-921E-4E02-987E-7404E920068B-low.gif) Supplementary Pro Forma Information (Unaudited) The following information is not audited. "NFP I's revenue and changes in net assets without donor restrictions and net assets with donor restrictions for the year ending December 31, 20X1, as if the merger had occurred at January 1, 20X1, are:" Revenue Change in Net Assets without Donor Restrictions Change in Net Assets with Donor Restrictions Supplemental pro forma information for 1/1/20X1-12/31/20X1 " $17,139 " " $5,715 " "($2,575)" ### Acquisition by a Not-for-Profit Entity #### Implementation Guidance ##### [805-958-55-39](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-39) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:bf66cd663b136a59b85ea3853091db0e58eb0890760fe7ec42c702149dc6f1b7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subsection provides implementation guidance, which is incremental to the guidance in Sections 805-10-55 and 805-20-55, on all of the following: 1. a 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.") and a [nonprofit activity](https://asc.understandingaccounting.org/glossary/n/#nonprofit-activity "An integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing benefits, other than goods or services at a profit or profit equivalent, as a fulfillment of an entity's purpose or mission (for example, goods or services to beneficiaries, customers, or members). As with a not-for-profit entity, a nonprofit activity possesses characteristics that distinguish it from a business or a for-profit business entity.") 2. b Identifying 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.") 3. c [Intangible assets](https://asc.understandingaccounting.org/glossary/i/#intangible-assets "Assets (not including financial assets) that lack physical substance. (The term intangible assets is used to refer to intangible assets other than goodwill.)") that are [identifiable](https://asc.understandingaccounting.org/glossary/i/#identifiable "An asset is identifiable if it meets either of the following criteria: It is separable, that is, capable of being separated or divided from the entity and sold, transferred, licensed, rented, or exchanged, either individually or together with a related contract, identifiable asset, or liability, regardless of whether the entity intends to do so. It arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations.") 4. d Transactions between entities under common control. ##### [805-958-55-40](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-40) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:b6a147b2fe6e10ec63a3d4a7d8244574a023577b5376a301ef978d1a996bbd21 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [805-10-15-4](https://asc.understandingaccounting.org/asc/805/10/#805-10-15-4) uses the term _business_ to differentiate an acquisition of an integrated set of activities and assets that is within the scope of Topic 805 from an acquisition of a group of assets that is outside its scope. This Subtopic uses that same definition. In addition to the term _business_, this Subtopic also uses the term _nonprofit activity_ to differentiate an acquisition of an integrated set of activities and assets that is within its scope from an acquisition of a group of assets that is outside its scope. It builds on the definition of a _business_ in defining a _nonprofit activity_; each is defined as an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing benefits. The nature of the benefits provided distinguishes a business from a nonprofit activity. Thus, in applying the guidance in paragraphs [805-10-55-3A through 55-9](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-3A) , references to a _business_ or _businesses_ also refer to a _not-for-profit activity_ or _not-for-profit activities_, and references to the three elements of _input_, _process_, and _output_ also include outputs that provide or have the ability to provide goods or services to beneficiaries, customers, or members that fulfill the purpose or mission for which a [not-for-profit entity](https://asc.understandingaccounting.org/glossary/n/#not-for-profit-entity "An entity that possesses the following characteristics, in varying degrees, that distinguish it from a business entity: Contributions of significant amounts of resources from resource providers who do not expect commensurate or proportionate pecuniary return Operating purposes other than to provide goods or services at a profit Absence of ownership interests like those of business entities. Entities that clearly fall outside this definition include the following: All investor-owned entities Entities that provide dividends, lower costs, or other economic benefits directly and proportionately to their owners, members, or participants, such as mutual insurance entities, credit unions, farm and rural electric cooperatives, and employee benefit plans.") (NFP) exists. ##### [805-958-55-41](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-41) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:d5cffa2111edf1849755137726f1f195c5fc10e6256da5edff0d4ff26d348298 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Furthermore, because an integrated set of activities that is in the development stage might not have outputs, an acquirer should consider, in addition to the factors in paragraph [805-10-55-5D](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-5D), whether the set will be able to obtain access to beneficiaries or members that will purchase or otherwise receive the outputs that fulfill the purpose or mission for which an NFP exists. ##### [805-958-55-42](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-42) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:14d9b7a14caa049a7cd5b3f7d54a0740d1a85a63c0da06ba8427bae67af8e53f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [958-805-25-15](https://asc.understandingaccounting.org/asc/805/958/#805-958-25-15) provides guidance used by the combining entities to determine the acquirer. If applying the guidance in that paragraph does not clearly indicate which of the combining entities is the acquirer, paragraph [958-805-25-16](https://asc.understandingaccounting.org/asc/805/958/#805-958-25-16) requires that the combining entities consider the factors in paragraphs [805-10-55-10 through 55-15](https://asc.understandingaccounting.org/asc/805/10/#805-10-55-10) and in paragraphs [958-805-55-43 through 55-46](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-43) . ##### [805-958-55-43](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-43) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:d8c16fa5842a4bfde8d3c97f4164c2dc75e53111fef849201666051103300cbc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If one of the combining entities can select or dominate the process of selecting the management team of the resulting organization, that entity is likely to be the acquirer. ##### [805-958-55-44](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-44) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:fe9d32c794229a8d344ff61ae1bd2e559922ef811d1f28b6dd2842c6cdd172af Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The acquirer usually is the entity whose governing body has the ability to select or dominate the process of selecting the governing body of the combined entity, which may be a newly created entity, although whether a new entity is created is not a pertinent factor in identifying an acquisition (see paragraph [958-805-55-1](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-1)). That ability may be demonstrated by an entity's powers to elect or appoint members to the combined entity's governing body or an entity's powers to dominate the process of selecting a voting majority. In determining whether one of the entities has the power to dominate the selection process, consideration shall be given to the existence of rights to elect or appoint members to the governing body that are provided by the entity's articles of incorporation, by its bylaws, or by provisions in the acquisition agreement. Consideration also shall be given to the ability of one entity to dominate the selection process through other means. ##### [805-958-55-45](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-45) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:e0e04f2bb550ac15745de23ae52ebd0f6c5f8c071aa64bfd9d4ce8366a21ba83 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The combined entity often retains the mission and the legal name of the acquirer. ##### [805-958-55-46](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-46) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:b0aafeda6c9a1dc71341283615bb2e93aea486a5d0a94127ffb9108f2c1c45fa Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following factors should be considered in assessing which entity is able to select or to dominate the process of selecting the governing body: 1. a If the combined entity's articles of incorporation or bylaws state that the members of the governing body are appointed, whether one of the entities has the right to appoint a voting majority of the governing body. 2. b Both of the following factors, if the combined entity's governing body is self-perpetuating: 1. 1 Whether one of the entities has the right to select a voting majority of the initial governing body of the entity as part of the acquisition agreement 2. 2 Whether one of the entities has the ability to dominate the selection of a voting majority of the initial governing body of the entity through means other than negotiated selection rights, such as through disproportionate representation on the committee that selects nominees for that body. 3. c If the initial governing body of the combined entity is selected by the governing members of the combining entities, whether one entity's members have the majority of the voting rights. 4. d Any other rights to appoint or designate members of the combined entity's governing body either as of the acquisition date or in the near future (such as upon the expiration of the terms of some or all of the initial members). 5. e If positions on the combined entity's governing body are designated positions, the effect of those designated positions on the ability of an entity to appoint a voting majority of the resulting entity's governing body. 6. f The powers of any sponsoring entities or members of an NFP and the composition of those sponsors and members. If sponsors and corporate members have limited powers, the effect of those limited powers on the ability of one of the entities to control the combined entity. 7. g If the combined entity's governing body delegates powers to committees, the nature of those delegated powers and the composition of the committees. 8. h The effect of voting requirements (such as supermajority voting requirements) on the ability of one entity to appoint or dominate the selection of a supermajority of the governing body of the combined entity. ##### [805-958-55-47](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-47) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:59e2ad88d44f280b4da9d180954c819a57f02fe967730940e949c924499e761e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In addition to the examples of intangible assets provided in paragraphs [805-20-55-11 through 55-45](https://asc.understandingaccounting.org/asc/805/20/#805-20-55-11) , a donor list is an example of an identifiable asset. ##### [805-958-55-48](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-48) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:f8187280ca95d78234dd84326bce2aaeef5fb7eaaa99b38b4755beb619eff56d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A donor list is different from a customer list (see paragraph [805-20-55-21](https://asc.understandingaccounting.org/asc/805/20/#805-20-55-21)), although a donor list consists of similar information about donors, such as their names and contact information. A donor list also may be in the form of a database that includes other information about the donors, such as their donation histories and demographic information. A donor list may but does not always arise from contractual or other legal rights. However, donor lists are frequently leased or exchanged. Therefore, a donor list acquired in an acquisition by a not-for-profit entity normally meets the separability criterion (see paragraph [805-20-55-4](https://asc.understandingaccounting.org/asc/805/20/#805-20-55-4)). However, a donor list would not meet the separability criterion if the terms of confidentiality or other agreements prohibit an entity from selling, leasing, or otherwise exchanging information about its donors. #### Illustrations ##### [805-958-55-49](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-49) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:24ffc9b3f2c55dae71d7c2470a819c510657bb2386793a27769c4db1d6fa9deb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates application of the guidance in paragraphs [958-805-25-23 through 25-24](https://asc.understandingaccounting.org/asc/805/958/#805-958-25-23) . Museum B, which has a policy of not capitalizing its [collection](https://asc.understandingaccounting.org/glossary/c/#collections "Works of art, historical treasures, or similar assets that meet all of the following criteria: They are held for public exhibition, education, or research in furtherance of public service rather than financial gain. They are protected, kept unencumbered, cared for, and preserved. They are subject to an organizational policy that requires the use of proceeds from items that are sold to be for the acquisitions of new collection items, the direct care of existing collections, or both. Collections generally are held by museums; botanical gardens; libraries; aquariums; arboretums; historic sites; planetariums; zoos; art galleries; nature, science, and technology centers; and similar educational, research, and public service organizations that have those divisions; however, the definition is not limited to those entities nor does it apply to all items held by those entities."), acquires Museum A without transferring consideration. As part of the transaction, Museum B acquires 500 paintings owned by Museum A. Museum B adds 450 of Museum A's paintings to its collection. The remaining 50 paintings acquired from Museum A are not suitable for Museum B's collection. They are not subject to donor restrictions, and Museum B expects to sell them. The fair values of Museum A's assets and liabilities other than collection items (the 450 paintings) at the acquisition date follows. - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-AFBA0D96-CFD6-4ECC-908D-1783EC2C9025-low.gif) Cash $200 Accounts receivable 400 Contributions receivable 200 "Property, plant, and equipment" 800 Paintings (50 paintings) 100 Liabilities (200) Identifiable net assets other than collections " $1,500 " ##### [805-958-55-50](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-50) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:15ee0f9558c3e3aa7a92bf03287278767818cd532758cbc4b481bc090875f71c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An NFP acquirer needs to determine whether acquired collection items were purchased or contributed and, if purchased, the cost to attribute to them. Because Museum B transferred no consideration, it would recognize a separate credit to its statement of activities (contribution received) of $1,500 in accordance with paragraph [958-805-25-31](https://asc.understandingaccounting.org/asc/805/958/#805-958-25-31). No measurement of the collection items (the 450 paintings) would be required because it is evident that those items were contributed as part of the acquisition. It is evident that the items were contributed because the fair value of the identifiable assets (excluding the collection items) exceeds the fair value of the liabilities assumed and no consideration was transferred for the acquiree. Any value that might be ascribed to the newly acquired collection items would increase the amount of the contribution received by Museum B in the acquisition. Consistent with paragraph [958-605-25-19](https://asc.understandingaccounting.org/asc/605/958/#605-958-25-19), contributed collection items shall not be recognized as a contribution received if collections are not capitalized. ##### [805-958-55-51](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-51) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:1323813a89b2da6f761cd9c89694e470d8f79dd3cd382ea43a1582fe9b5846cd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates application of the guidance in paragraphs [958-805-25-23 through 25-24](https://asc.understandingaccounting.org/asc/805/958/#805-958-25-23) . Museum D, which has a policy of not capitalizing its collection, acquires Museum C. To effect the acquisition, Museum D agrees to transfer cash consideration of $1,600 to a foundation designated by Museum C. As part of the acquisition, Museum D acquires 800 paintings owned by Museum C. Museum D adds all of Museum C's paintings to its collection. The fair values of Museum C's assets and liabilities other than collection items at the acquisition date follow. - ![](https://asc.understandingaccounting.org/asc-img/GUID-456678D6-FBD6-4F05-817B-F9AA4C4501E8-low.gif) Cash $100 Accounts receivable 50 Contributions receivable 75 "Property, plant, and equipment" 675 Liabilities assumed (200) Identifiable net assets other than collections $700 ##### [805-958-55-52](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-52) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:286d00bbd0c6b098d7cdc343eb919095d38d9ba5e613e83bdcab142f88c5b1bd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. It is unclear whether the collection items were contributed or purchased because the fair value of the consideration transferred is $1,600, which exceeds the aggregate of the identifiable net assets acquired (excluding the collection items) of $700. The excess $900 paid could be attributable entirely to either the collection items or goodwill, or part could be attributed to the cost of the collection items and part to goodwill. ##### [805-958-55-53](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-53) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:d6dfc7f4adb37de111f2c4c64fc935de528b1ceceea4a86f25406df32fa4ae0b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In this circumstance, if Museum D determines that the acquisition-date fair values of the collection items are far greater than $900, it would presume that $900 of the excess relates to the cost of the purchased collection items and that the remainder of the excess relates to contributed collection items. Consistent with how purchased collections are reported in paragraph [958-360-45-5](https://asc.understandingaccounting.org/asc/360/958/#360-958-45-5), that $900 cost would be reported as a decrease in the appropriate class of net assets in the statement of activities in the period of the acquisition. No goodwill or contribution revenue would be recognized. ##### [805-958-55-54](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-54) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:30f0993ffb48037a9f678ea3880c5fe7dee8bf8bbbc98890f8565ada51edd545 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If Museum D instead determines that the acquisition-date fair values of the collection items are less than $900, for example, $300, it could not presume that the entire $900 excess relates to the collection. Rather, Museum D would attribute that lesser amount to the cost of the purchased collection items and attribute the remaining portion of the excess ($600) to goodwill in accordance with paragraph [958-805-25-28](https://asc.understandingaccounting.org/asc/805/958/#805-958-25-28). (The acquiree, Museum C, as part of the combined entity, is expected to obtain so much of its support from sources other than contributions and returns on investments that it does not qualify to immediately charge to the statement of activities the amount that otherwise is recognized as goodwill.) ##### [805-958-55-55](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-55) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:d766768f231d05db18517afc6a2de39528d83879be128a690329af54b198c533 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates application of the guidance in paragraphs [958-805-25-32 through 25-35](https://asc.understandingaccounting.org/asc/805/958/#805-958-25-32) . Hospital, an independent, not-for-profit community hospital, agreed to be acquired by System, a nearby not-for-profit health care system. Hospital was in the midst of a major capital project at the acquisition date. To ensure completion of that capital project, Hospital's board of directors required that System transfer $20 million to Foundation, a newly formed, unrelated foundation that is governed by a self-perpetuating board of directors. Foundation's initial board of directors is composed of the former board of directors of Hospital. The acquisition agreement requires that the $20 million be used to complete the project, if necessary, and that any assets remaining in Foundation on completion of the capital project be used solely for future capital projects at Hospital. ##### [805-958-55-56](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-56) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:4a1e4888b0f3ad16f510d289fb143431c5109b3378824322e82059c02fc550c8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In this Example, the acquirer has transferred assets to an unrelated third party as a required condition of the acquisition. However, because those assets may be used only for future capital additions at Hospital, System has retained control over the future economic benefits of those assets. A transferor that retains control over the economic benefits in the transferred assets has not transferred assets in exchange for the acquiree. Rather, that transferor has exchanged one asset for another. An asset transfer of that type shall be accounted for as an asset-for-asset exchange rather than as consideration transferred. ##### [805-958-55-57](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-57) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:4ef69e2e670b65963d0b68059c5ccfee2f403609dc072ed2f9fe3c1d09b69a54 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates application of the guidance in paragraph [958-805-25-35](https://asc.understandingaccounting.org/asc/805/958/#805-958-25-35). To induce the acquisition of NFP E, a financially weak not-for-profit entity (NFP), by NFP F, a financially strong NFP, as a condition of NFP F's acquisition of NFP E, a third-party donor agrees to provide a cash contribution to support NFP E's mission. That assistance is transferred to NFP F (the consolidated entity) upon the closing of the acquisition agreement. The donor, as part of its mission and purpose, has an interest in supporting certain NFPs. From the perspective of the donor, the assistance provided to induce NFP F to acquire NFP E is in the furtherance of its mission. ##### [805-958-55-58](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-58) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:d5041350e93e55d12d9f64afdf46b944b5902e49c0e251b06fcaf1ef1b294b13 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In this Example, the transaction was arranged primarily to achieve economic benefits favorable to the acquiree. Thus, that assistance would be an asset acquired at the acquisition date that is recognized as part of accounting for the acquisition. The cash assistance also is included in the acquisition accounting even though it is transferred to the resulting combined entity. The situation is accounted for the same as if the third-party donor had contributed the cash to NFP E before NFP F's acquisition of NFP E. ##### [805-958-55-59](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-59) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:717637e5ffa9b9e5c38e4ca25a2a0a903400c2ae70b7bc096511188ee45742b9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates one way in which a not-for-profit entity (NFP) might implement the requirements of paragraphs [958-805-25-29](https://asc.understandingaccounting.org/asc/805/958/#805-958-25-29) and [958-805-45-4](https://asc.understandingaccounting.org/asc/805/958/#805-958-45-4). On February 10, 20X0, NFP G, a religious not-for-profit entity, purchases 100 percent of the ownership interests in Restaurant H for consideration of $525,000. On the acquisition date, the amount of the net identifiable assets of Restaurant H recognized and measured in accordance with this Subtopic was $410,000. NFP G acquired Restaurant H for the purpose of converting it to a soup kitchen. ##### [805-958-55-60](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-60) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:9ef2e9bcaa9df68fe74d570cdcfb1e4a02934389e87c532010665f0235919bbd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Management of NFP G expects the soup kitchen resulting from the conversion of Restaurant H to be predominantly supported by [contributions](https://asc.understandingaccounting.org/glossary/c/#contribution "An unconditional transfer of cash or other assets, as well as unconditional promises to give, to an entity or a reduction, settlement, or cancellation of its liabilities in a voluntary nonreciprocal transfer by another entity acting other than as an owner. Those characteristics distinguish contributions from:Exchange transactions, which are reciprocal transfers in which each party receives and sacrifices approximately commensurate valueInvestments by owners and distributions to owners, which are nonreciprocal transfers between an entity and its ownersOther nonreciprocal transfers, such as impositions of taxes or legal judgments, fines, and thefts, which are not voluntary transfers. In a contribution transaction, the resource provider often receives value indirectly by providing a societal benefit although that benefit is not considered to be of commensurate value. In an exchange transaction, the potential public benefits are secondary to the potential direct benefits to the resource provider. The term contribution revenue is used to apply to transactions that are part of the entity's ongoing major or central activities (revenues), or are peripheral or incidental to the entity (gains). See also Inherent Contribution and Conditional Contribution.") and returns on investments. Specifically, the operating costs of the soup kitchen are expected to be funded by NFP G's existing contribution base. The following table illustrates how NFP G might satisfy the requirements of paragraph [958-805-45-4](https://asc.understandingaccounting.org/asc/805/958/#805-958-45-4) for presenting the separate charge to the statement of activities at the acquisition date. - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-5CD42ED7-FD4B-42A7-B43E-869AEE2D9139-low.gif) "NFP G Statement of Activities For the Year Ended December 31, 20X0 (presented in thousands)" Without Donor Restrictions With Donor Restrictions Total "Revenue, gains, and other support" " $8,640 " "$6,790 " " $15,430 " Net assets released from restrictions " 5,820 " " (5,820)" - "Total revenues, gains, and other support" " 14,460 " 970 " 15,430 " Expenses " (13,115)" - " (13,115)" "Change in net assets before changes related to acquisition of Restaurant H" " 1,345 " 970 "2,315" "Excess of consideration transferred over net assets acquired in acquisition of Restaurant H (Note X)" (115) - (115) Change in net assets " $1,230 " $970 " $2,200 " ##### [805-958-55-61](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-61) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:293a3f97b0a2f13df45712916878684ae9041dcca7e52cea74ae29b050b734e1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. NFP G might satisfy the requirements of paragraphs [805-10-50-2(a) through (d)](https://asc.understandingaccounting.org/asc/805/10/#805-10-50-2) and paragraph [958-805-50-11(a)](https://asc.understandingaccounting.org/asc/805/958/#805-958-50-11) as shown in the illustrative note below. - **Note X: Acquisition of Restaurant H** - On February 10, 20X0, NFP G acquired Restaurant H, a local restaurant, which it converted into a soup kitchen. NFP G acquired Restaurant H as part of furthering its mission to care for the needy. The acquisition was effected by purchasing 100 percent of the ownership interests in Restaurant H. - Because the operations of the soup kitchen are expected to be predominantly supported by contributions and returns on investments, NFP G has recognized the excess of the consideration transferred over the net assets acquired as a separate charge in its statement of activities rather than as goodwill. NFP G paid consideration of $525,000 for Restaurant H. On the acquisition date, the net identifiable assets of Restaurant H were $410,000. The excess of the amount paid over the net identifiable assets acquired represents the value of Restaurant H's assembled workforce, which is not recognized as a separate intangible asset, and the value of Restaurant H's earnings potential as a restaurant to other potential buyers. ##### [805-958-55-62](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-62) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:96b914d3de6e5a77bec53a9a180c0fd45e8d92a6e89f6c737f4f4f37b59ec280 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates application of the guidance in paragraphs [958-805-25-31](https://asc.understandingaccounting.org/asc/805/958/#805-958-25-31), [958-805-30-8 through 30-9](https://asc.understandingaccounting.org/asc/805/958/#805-958-30-8) , and [958-805-45-5 through 45-7](https://asc.understandingaccounting.org/asc/805/958/#805-958-45-5) . The Example has the following Cases: 1. a The [inherent contribution](https://asc.understandingaccounting.org/glossary/i/#inherent-contribution "A contribution that results if an entity voluntarily transfers assets (or net assets) or performs services for another entity in exchange for either no assets or for assets of substantially lower value and unstated rights or privileges of a commensurate value are not involved.") is not subject to additional restrictions (Case A) 2. b The inherent contribution is subject to additional restrictions (Case B). ##### [805-958-55-63](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-63) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:3cad41220d7488cc9dd1387e43ed9e5efc8df5f30561c9cda86e952d4d5c7f7c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Cases A and B share the following assumptions. ##### [805-958-55-64](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-64) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:f61e9031ed0fad6dc1f0a35038d1ae8eed4a8650dd10e332f64d8ef08b03dfb2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Charity I acquires Charity J. Charity I transfers no consideration in exchange for Charity J. The acquisition was achieved by, in effect, a gift of Charity J to Charity I. The fair values of Charity J's assets and liabilities, including [donor-imposed restrictions](https://asc.understandingaccounting.org/glossary/d/#donor-imposed-restriction "A donor stipulation (donors include other types of contributors, including makers of certain grants) that specifies a use for a contributed asset that is more specific than broad limits resulting from the following: The nature of the not-for-profit entity (NFP) The environment in which it operates The purposes specified in its articles of incorporation or bylaws or comparable documents for an unincorporated association. Some donors impose restrictions that are temporary in nature, for example, stipulating that resources be used after a specified date, for particular programs or services, or to acquire buildings or equipment. Other donors impose restrictions that are perpetual in nature, for example, stipulating that resources be maintained in perpetuity. Laws may extend those limits to investment returns from those resources and to other enhancements (diminishments) of those resources. Thus, those laws extend donor-imposed restrictions."), at the acquisition date follow. - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-84D17AA5-0FCE-4717-B721-AFBDCB342931-low.gif) Cash $75 Net assets without donor restrictions $550 Contributions receivable 225 Net assets with donor restrictions 450 Long-term investments 500 "Plant, property, and equipment" 430 Total net assets " $1,000 " Total assets " 1,230 " Accounts payable (65) Mortgage (165) Total liabilities (230) Total net assets " $1,000 " ##### [805-958-55-65](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-65) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:4c78592fff41b9d05cd045610dfee8e7cc8e41cd06c1728e381d339faba38daf Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Charity I recognizes a $1,000 [contribution](https://asc.understandingaccounting.org/glossary/c/#contribution "An unconditional transfer of cash or other assets, as well as unconditional promises to give, to an entity or a reduction, settlement, or cancellation of its liabilities in a voluntary nonreciprocal transfer by another entity acting other than as an owner. Those characteristics distinguish contributions from:Exchange transactions, which are reciprocal transfers in which each party receives and sacrifices approximately commensurate valueInvestments by owners and distributions to owners, which are nonreciprocal transfers between an entity and its ownersOther nonreciprocal transfers, such as impositions of taxes or legal judgments, fines, and thefts, which are not voluntary transfers. In a contribution transaction, the resource provider often receives value indirectly by providing a societal benefit although that benefit is not considered to be of commensurate value. In an exchange transaction, the potential public benefits are secondary to the potential direct benefits to the resource provider. The term contribution revenue is used to apply to transactions that are part of the entity's ongoing major or central activities (revenues), or are peripheral or incidental to the entity (gains). See also Inherent Contribution and Conditional Contribution.") received in the acquisition (the excess of the acquisition date values of the identifiable assets acquired over the acquisition date values of the liabilities assumed). Charity I classifies the inherent contribution received according to the type of donor-imposed restrictions, including any imposed by the donor of the business or nonprofit activity acquired. ##### [805-958-55-66](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-66) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:02f9509bfe43e293a847dd9851412914d06c713368c22bfa723b60a4bc499dcd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Based on donor restrictions on Charity J's net assets at the acquisition date, net assets with a fair value of $450 were classified as with donor restrictions. In this Example, Charity J is, in effect, the donor of the acquired nonprofit activity, and it imposes no additional donor restrictions. To recognize the fiduciary responsibilities to the donors of Charity J that are assumed when Charity J's assets and liabilities are acquired, Charity I would classify changes to its net assets as follows. - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-0EE396DC-02D3-4E13-860E-EEAB4816B8B1-low.gif) Increase in net assets without donor restrictions: Contribution received in the acquisition of Charity J $550 Increase in net assets with donor restrictions: Contribution received in the acquisition of Charity J $450 ##### [805-958-55-67](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-67) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:cb1a2d8cd422127ed2b0d383ecd612f8acbb10d8dfd8947fa6906c97f0b70bb8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Charity J is a subsidiary of Parent before the acquisition by Charity I. As a condition of the acquisition, Parent's governing board requires that Charity I use $175 of [net assets without donor restrictions](https://asc.understandingaccounting.org/glossary/n/#net-assets-without-donor-restrictions "The part of net assets of a not-for-profit entity that is not subject to donor-imposed restrictions (donors include other types of contributors, including makers of certain grants).") for future capital improvements to the facility acquired. The requirement is irrevocable and is not self-imposed. To recognize the fiduciary responsibilities to the donors of Charity J that are assumed when Charity J's assets and liabilities are acquired, Charity I would classify changes to its net assets as follows. - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-E8C51D9E-5883-488F-9B34-582AF94B628C-low.gif) Increase in net assets without donor restrictions: Contribution received in the acquisition of Charity J $375 Increase in net assets with donor restrictions: Contribution received in the acquisition of Charity J $625 ##### [805-958-55-68](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-68) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:6b520f0d7e3045bc983d6b6762e1c569239753660c1ec2b3326fe66882b4b91c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates application of the guidance in paragraphs [958-805-45-11](https://asc.understandingaccounting.org/asc/805/958/#805-958-45-11) and [958-805-50-15](https://asc.understandingaccounting.org/asc/805/958/#805-958-50-15). Entity X, an NFP, acquires Entity S from Entity S's parent. As part of the acquisition, Entity S's parent requires that Entity X transfer consideration of $300 to a third-party community foundation. The fair values of Entity S's assets and liabilities at the acquisition date are as follows. - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-2A628F40-541B-42D4-8C44-511644C79117-low.gif) Cash $25 Contributions receivable 155 "Property, plant, and equipment" 900 Long-term note payable (375) Net assets acquired $705 ##### [805-958-55-69](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-69) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:fef51583532a11ddd7b9a18db3c1127736fc98c10daf8e44944ffafd5dfa0bd3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity X reports the acquisition as a single line in the investing activities section of the statement of cash flows, as follows: - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-BDDC74BF-5A07-4705-AF47-48A32007E71A-low.gif) "Payment for acquisition of Entity S, net of cash acquired" $(275) ##### [805-958-55-70](https://asc.understandingaccounting.org/asc/805/958/#805-958-55-70) Pending content: no Source downloaded (UTC): 2026-09-10T01:28:08.862Z to 2026-09-10T01:28:08.862Z Record version: sha256:2a71ad0a0261a5fe2c7fffcfebf20db8fc58a313d47ecb268405cced632597ab Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity X discloses the following additional information in a supplemental schedule of investing and financing activities: - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-87D49061-80F0-4773-8924-B18C6E7133AE-low.gif) "The Entity acquired Entity S by transferring cash of $300. In conjunction with the acquisition, liabilities were assumed and a contribution was received from Entity S's parent as follows:" Fair value of assets acquired " $1,080 " Cash transferred to community foundation (300) Liabilities assumed (375) Contribution received in acquisition of Entity S $405