A guide to accounting for business combinations
A guide to accounting for business combinations assists middle market companies in accounting for business combinations under Topic 805, Business Combinations, of the Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC). Applying the accounting model in ASC Topic 805 is no small undertaking given some of the complexities embedded in that model.
Some of the complexities involved in applying ASC Topic 805 include:
- The determination of whether a business has been acquired and if the transaction falls within the scope of ASC Topic 805. A significant amount of judgment may need to be exercised in determining whether or not a business has been acquired
- The accounting for contingent consideration involves a number of potentially complex steps, including measuring it initially at fair value, classifying it appropriately as either an asset, liability or equity and subsequently adjusting it to fair value
- The required use of a fair-value model to account for business combinations often requires the involvement of valuation specialists—both related to management’s accounting for a business combination and the auditor’s testing of the amounts recognized
To help alleviate this complexity, our guide explains the accounting for a business combination in plain English and illustrates many aspects of the accounting with detailed examples and illustrations.
In addition to the above, the list of topics explored in the guide spans the entire spectrum, from determining whether a business combination occurred to the accounting for certain acquired items on and after the acquisition date to calculating the amount of goodwill or gain on a bargain purchase that should be recognized to providing the necessary disclosures for a business combination. In addition, the guide provides detailed discussion and examples on topics closely related to business combinations, such as accounting for combinations or transfers between entities under common control, accounting for asset acquisitions, accounting for increases or decreases in the buyer’s ownership interest in the target after the business combination and applying pushdown accounting.
The December 2025 edition of the guide has been updated to incorporate the issuance of recent FASB guidance and the effectiveness of certain FASB accounting standard updates. The guide has also been updated to address various issues encountered in practice. A summary of the significant changes made in this edition can be found in Appendix F of the guide.