ASC 805: Business Combinations – Comprehensive Guide and Resources

ASC 805: Business Combinations outlines the accounting and reporting requirements for business combinations under US GAAP. This guidance is crucial for companies involved in mergers and acquisitions, ensuring that all transactions are recorded and reported accurately.

Key Points of ASC 805

What is ASC 805?

ASC 805 applies to transactions or events where an entity gains control over one or more businesses. The guidance covers various aspects, including:

• Identifying a Business Combination

• The Acquisition Method

• Recognizing and Measuring Identifiable Assets, Liabilities, and Non-controlling Interests

• Goodwill and Bargain Purchase

• Disclosures

Identifying a Business Combination

A business combination occurs when an acquirer obtains control over a business. This involves identifying the acquirer and the acquiree, and ensuring that the transaction meets the definition of a business combination.

The Acquisition Method

The acquisition method involves four key steps:

1. Identifying the acquirer

2. Determining the acquisition date

3. Recognizing and measuring the identifiable assets acquired, liabilities assumed, and any non-controlling interest

4. Recognizing and measuring goodwill or a gain from a bargain purchase

Recognizing and Measuring Identifiable Assets, Liabilities, and Noncontrolling Interests

ASC 805 requires that identifiable assets acquired and liabilities assumed be measured at their acquisition-date fair values. Non-controlling interests should be measured at their fair value or the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets.

Goodwill and Bargain Purchase

Goodwill is recognized as the excess of the consideration transferred over the net identifiable assets acquired and liabilities assumed. In a bargain purchase, where the net assets exceed the consideration transferred, a gain is recognized.

Disclosures

ASC 805 mandates detailed disclosures to provide users of financial statements with information to evaluate the nature and financial effects of a business combination.

Handbooks and Publications

Deloitte’s Business Combinations Handbook

PwC’s Business Combinations and Noncontrolling Interests

EY’s Business Combinations

KPMG’s Business Combinations Handbook

Additional Resources

Webinars and Videos

Video: Demystifying ASC 805

Articles and Updates

A Brief Synopsis of ASC 805

Gaap Dynamics with a thorough explanation on the topic

Access new jobs through Audit Friendly!

FAQs

What is the primary objective of ASC 805? The primary objective of ASC 805 is to provide guidance on accounting for business combinations, ensuring that all identifiable assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree are recognized and measured accurately.

How is goodwill calculated in a business combination? Goodwill is calculated as the excess of the consideration transferred over the net identifiable assets acquired and liabilities assumed.

Conclusion

Understanding and applying ASC 805 is essential for accurate financial reporting in business combinations. Use the resources provided on this page to deepen your knowledge and ensure compliance with the guidance. For further information, refer to the detailed handbooks and publications linked above.