A.2 Scope

ASC 805-50

05-9 The guidance in the Pushdown Accounting Subsections addresses whether and at what threshold an acquiree that is a business or nonprofit activity can apply pushdown accounting in its separate financial statements.

15-10 The guidance in the Pushdown Accounting Subsections applies to the separate financial statements of an acquiree and its subsidiaries.

15-11 The guidance in the Pushdown Accounting Subsections does not apply to transactions in paragraph 805-10-15-4.

ASC 805-10

15-4 The guidance in the Business Combinations Topic does not apply to any of the following:

The formation of a joint venture
The acquisition of an asset or a group of assets that does not constitute a business or a nonprofit activity
A combination between entities, businesses, or nonprofit activities under common control (see paragraph 805-50-15-6 for examples)
An acquisition by a not-for-profit entity for which the acquisition date is before December 15, 2009 or a merger of not-for-profit entities (NFPs)
A transaction or other event in which an NFP obtains control of a not-for-profit entity but does not consolidate that entity, as described in paragraph 958-810-25-4. The Business Combinations Topic also does not apply if an NFP that obtained control in a transaction or other event in which consolidation was permitted but not required decides in a subsequent annual reporting period to begin consolidating a controlled entity that it initially chose not to consolidate.
Financial assets and financial liabilities of a consolidated variable interest entity that is a collateralized financing entity within the scope of the guidance on collateralized financing entities in Subtopic 810-10.

Pending Content (Transition Guidance: ASC 805-60-65-1)

15-4 The guidance in the Business Combinations Topic does not apply to any of the following:

The formation of a joint venture or a corporate joint venture (except as described in Subtopic 805-60)
The acquisition of an asset or a group of assets that does not constitute a business or a nonprofit activity
A combination between entities, businesses, or nonprofit activities under common control (see paragraph 805-50-15-6 for examples)
An acquisition by a not-for-profit entity for which the acquisition date is before December 15, 2009 or a merger of not-for-profit entities (NFPs)
A transaction or other event in which an NFP obtains control of a not-for-profit entity but does not consolidate that entity, as described in paragraph 958-810-25-4. The Business Combinations Topic also does not apply if an NFP that obtained control in a transaction or other event in which consolidation was permitted but not required decides in a subsequent annual reporting period to begin consolidating a controlled entity that it initially chose not to consolidate.
Financial assets and financial liabilities of a consolidated variable interest entity that is a collateralized financing entity within the scope of the guidance on collateralized financing entities in Subtopic 810-10.

The pushdown accounting subsections in ASC 805-50 address when an acquiree may elect to apply pushdown accounting. ASC 805-50-15-10 indicates that the scope of pushdown accounting includes “the separate financial statements of an acquiree and its subsidiaries” that meet the definition of a business in ASC 805-10, as indicated in ASU 2014-17, or a nonprofit activity “upon the occurrence of an event in which an acquirer (an individual or an entity) obtains control of the [acquiree].” The scope includes both public and nonpublic entities.

The EITF considered whether the scope of the pushdown accounting subsections in ASC 805-50 should be limited to transactions in which an entity becomes substantially wholly owned rather than applying to all transactions or events in which an acquirer obtains control of a business or nonprofit activity. The Task Force ultimately decided that the scope of the guidance should be broader and should be consistent with the scope of ASC 805-10, ASC 805-20, and ASC 805-30, which apply to all transactions or events in which an acquirer obtains control of a business or nonprofit activity. As indicated in the Background Information and Basis for Conclusions of ASU 2014-17, the Task Force reasoned that the FASB had already decided in ASC 805-10, ASC 805-20, and ASC 805-30 that obtaining control of a business is a significant event for which a new basis of accounting is required “for the net assets acquired and, in the absence of another distinct threshold that is conceptually grounded in GAAP, change-in-control events also could serve as the basis for establishing a new basis in an [acquiree’s] separate financial statements.” The Task Force also decided that a change-in-control threshold for pushdown accounting could reduce the complexity of the pushdown accounting guidance by eliminating the need to reconsider or develop collaborative group guidance, under which a group of investors may be regarded as a single investor in some circumstances.

An acquiree may only elect pushdown accounting if another entity or individual (i.e., an acquirer) has obtained control of the acquiree. Certain transactions are not within the scope of the pushdown accounting subsections of ASC 805-50 because they are not transactions in which an acquirer obtains control of a business or nonprofit activity (i.e., they are not within the scope of ASC 805-10, ASC 805-20, or ASC 805-30). Such transactions include the formation of a joint venture (see Section A.2.2 for a discussion of subsidiaries contributed to a joint venture upon formation); combinations between entities, businesses, or nonprofit activities under common control; and mergers of not-for-profit entities.

A.2.1 Pushdown Accounting for an Asset Acquisition

Since the introduction of the revised definition of a business and the screen test in ASU 2017-01, certain transactions that formerly would have constituted business combinations may now be accounted for as asset acquisitions even though in substance, they are similar in nature. While the scope of the guidance in ASC 805-10 and ASC 805-50 does not explicitly extend the option to apply pushdown accounting to asset acquisitions, we do not believe that the intent of ASU 2014-17 was to preclude it. In addition, we note that if pushdown accounting was viewed to be prohibited in an asset acquisition, the acquirer could structure and execute a transaction immediately after the acquisition in which the acquired assets are transferred to another entity under common control and such a transfer would require the application of pushdown accounting in accordance with ASC 805-50-30-5 (see Section A.4). Accordingly, we believe that it would be acceptable to elect pushdown accounting in the separate financial statements of an acquired entity that does not meet the definition of a business. Given that diversity in practice may exist, discussion with accounting advisers is encouraged.

A.2.2 Pushdown Accounting for Subsidiaries Contributed to a Joint Venture Upon Formation

ASU 2023-05 adds guidance on the formation of joint ventures in ASC 805-60. The ASU requires that, upon formation, a joint venture apply a new basis of accounting under which it recognizes and initially measures its assets and liabilities at their fair values upon formation. In addition, paragraph BC90 of ASU 2023-05 states, in part:

[T]he Board decided that the joint venture itself is more similar to an acquirer than to an acquiree because the joint venture gains control of the net assets contributed to it as part of the formation transaction, while no entity gains control of the joint venture.

Accordingly, we believe that it would be acceptable to elect pushdown accounting in the separate financial statements of a subsidiary that is contributed to a joint venture as a part of its formation given the deemed change in control over the net assets contributed as part of the formation transaction.

A.2.3 Pushdown Accounting for a Subsidiary of an Entity Adopting Fresh-Start Reporting Upon its Emergence From Bankruptcy

To qualify for fresh-start reporting under ASC 852, an entity must have (among other requirements) undergone a loss of control that is substantive and not temporary. Even if a pure change-in-control event has not occurred, we believe that the loss of control over the entity, coupled with the establishment of a new basis of accounting for the entity, is sufficiently analogous to a change in control that occurs in a business combination accounted for under ASC 805. Accordingly, we believe that it would be acceptable for a subsidiary of the entity adopting fresh-start reporting upon its emergence from bankruptcy to elect to apply pushdown accounting in its stand-alone financial statements under ASC 805-50 in a manner consistent with the guidance in ASU 2014-17.

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This publication provides comprehensive guidance; however, it does not address all possible fact patterns, and the guidance is subject to change. Consult a Deloitte & Touche LLP professional regarding your specific issues and questions.