A.17 Identifying When a Newly Formed Entity to Effect an Acquisition Is the Acquirer
While ASU 2014-17 simplified the application of pushdown accounting, it did not
resolve certain long-standing practice issues related to whether a newly formed
entity (commonly called a “newco”) should be identified as the acquirer in a
business combination. Entities will often establish a newco to effect the
acquisition of a business. If the newco is identified as the acquirer and is the
reporting entity, it would apply acquisition accounting, rather than pushdown
accounting. Therefore, recognizing a new basis for the assets acquired and
liabilities assumed in the newco’s financial statements would not be optional.
ASC 805-10-55-15 provides limited guidance on whether a newco should be identified as the accounting
acquirer and states:
A new entity formed to effect a business combination is not necessarily the acquirer. If a new entity is formed
to issue equity interests to effect a business combination, one of the combining entities that existed before the
business combination shall be identified as the acquirer by applying the guidance in paragraphs 805-10-55-10
through 55-14. In contrast, a new entity that transfers cash or other assets or incurs liabilities as consideration
may be the acquirer.
Entities must use judgment in determining whether a newco should be identified as the acquirer. See
Section 3.1.5 for more information about identifying a newco as the acquirer in a business combination.
A.17.1 Newco and Acquisition-Related Costs
If the newco is identified as the acquirer, the buyer’s acquisition-related
costs should generally be reflected in the newco’s
financial statements in accordance with SAB Topic
1.B and SAB Topic 5.T. If the newco’s parent
incurred costs on the newco’s behalf, such costs
should generally be recognized as an expense in
the newco’s financial statements, with a
corresponding credit to APIC. See Section A.12 for more
information.