This free, guided checker walks your finance team through the key decision points for ASC 805 Asset Acquisition vs Business Combination. Answer a few questions to see the likely treatment and the evidence to document.
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This tool is a high-level US GAAP screening aid for general information only and is not accounting, audit or legal advice. Conclusions require entity-specific evidence and judgement - confirm the treatment with your advisor.
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ASC 805-10-15-4 scopes out common control combinations, joint venture formations, and certain other transactions before the definition of a business is ever tested. Confirm who controls the set before and after closing; a transaction that does not transfer control between unrelated parties never reaches the screen. A common trap is running the business-definition analysis on a reorganization among entities already controlled by the same parent.
Outside the asset-versus-business framework; apply the transaction-specific guidance (ASC 805-50, ASC 805-60, or ASC 810-10-45-23).
Official guidance: FASB Accounting Standards Codification
The screen in ASC 805-10-55-5A asks whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set is not a business and the analysis stops. 'Substantially all' is not quantified in the Codification, so document the concentration percentage and its sensitivity to the underlying valuations. The common trap is aggregating dissimilar assets to manufacture concentration that the guidance does not permit.
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Official guidance: FASB Accounting Standards Codification
ASC 805-10-55-5B narrowly defines when multiple assets count as one identifiable asset for the screen: assets attached to one another that cannot be removed without significant cost or diminution in value, land and building, and a building with its in-place lease intangibles. If the unit was built more broadly, the screen fails as applied; re-perform it with a proper unit or proceed to the framework. The frequent trap in real estate deals is sweeping tenant relationships or above- and below-market lease values into the building beyond what the paragraph allows.
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Official guidance: FASB Accounting Standards Codification
ASC 805-10-55-5C prohibits treating certain combinations as similar: a tangible with an intangible asset, intangibles in different major intangible asset classes, a financial with a nonfinancial asset, different major classes of financial assets or of tangible assets, and identifiable assets within the same major class that have significantly different risk characteristics. Assess risk characteristics with evidence such as asset type, market, tenant or customer profile, and development stage. The trap is labeling a heterogeneous pool 'similar' simply because the assets share a balance sheet caption.
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Official guidance: FASB Accounting Standards Codification
Gross assets acquired for the screen are not the same as the balance sheet total: ASC 805-10-55-5A excludes cash and cash equivalents, deferred tax assets, and goodwill resulting from the effects of deferred tax liabilities, and includes the fair value of any consideration transferred (plus previously held interests and noncontrolling interests) in excess of the fair value of net identifiable assets. Retain the computation and the valuation support for each significant asset. The common trap is computing concentration on net assets or forgetting the excess-consideration element, either of which can flip the answer.
Screen met - the set is not a business; account for it as an asset acquisition under ASC 805-50.
Official guidance: FASB Accounting Standards Codification
Outputs are the result of inputs and processes applied to those inputs that provide goods or services to customers, investment income (such as dividends or interest), or other revenues. Make the assessment from a market participant's perspective under ASC 805-10-55-8 through 55-9: it does not matter whether the seller operated the set as a business or how the acquirer intends to run it. The trap is treating the mere continuation of revenue - for example, rents from in-place leases - as proof that a substantive process was acquired; revenue continuity alone does not establish one.
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Official guidance: FASB Accounting Standards Codification
When the set has outputs, ASC 805-10-55-6 treats a process as substantive if an organized workforce performs a process critical to producing outputs, or if the set includes an acquired contract providing access to such a workforce, or a process that cannot be replaced without significant cost, effort, or delay, or one that is unique or scarce. The presence of more than an insignificant amount of implied goodwill can indicate a substantive process (ASC 805-10-55-8 through 55-9) but is not determinative on its own. The trap is counting administrative staff or easily replaced service contracts as a critical workforce.
A substantive process was acquired with the outputs - the set is a business; apply the acquisition method. A substantive process was acquired with the outputs - the set is a business; apply the acquisition method. No substantive process accompanies the outputs - the set is not a business; account for an asset acquisition under ASC 805-50. Inputs without a substantive process are not a business - account for an asset acquisition under ASC 805-50.
Official guidance: FASB Accounting Standards Codification
For a set with no outputs, ASC 805-10-55-5D through 55-5E require an organized workforce that is an input and performs a substantive process, judged by whether the workforce's skills, knowledge, or experience are critical to the ability to develop or convert another acquired input into outputs. Evaluate headcount, roles, specialized expertise, and whether the workforce actually transferred and was retained. The trap in pre-revenue deals is concluding a handful of retained administrative employees, or a workforce that could be hired readily in the market, satisfies the criterion.
The development-stage set includes an input and a substantive process - it is a business; apply the acquisition method. Without an organized workforce and a developable input, the set is not a business - account for an asset acquisition under ASC 805-50.
Official guidance: FASB Accounting Standards Codification
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