A.8 Specific Initial Recognition and Measurement Guidance in an Acquiree’s Separate Financial Statements

ASC 805-50

30-10 If an acquiree elects the option in this Subtopic to apply pushdown accounting, the acquiree shall reflect in its separate financial statements the new basis of accounting established by the acquirer for the individual assets and liabilities of the acquiree by applying the guidance in other Subtopics of Topic 805. If the acquirer did not establish a new basis of accounting for the individual assets and liabilities of the acquiree because it was not required to apply Topic 805 (for example, if the acquirer was an individual or an investment company — see Topic 946 on investment companies), the acquiree shall reflect in its separate financial statements the new basis of accounting that would have been established by the acquirer had the acquirer applied the guidance in other Subtopics of Topic 805.

If an acquiree elects to apply pushdown accounting, the carrying amounts of its assets and liabilities in its separate financial statements are adjusted to reflect the amounts recognized in the acquirer’s consolidated financial statements as of the date on which control was obtained. As discussed in the paragraphs below, ASC 805-50 contains guidance on the initial recognition and measurement of certain assets, liabilities, and gains in an acquiree’s separate financial statements. For assets, liabilities, gains, and losses not specifically addressed in ASC 805-50, we believe that an acquiree should apply the recognition and measurement guidance in ASC 805-20 and ASC 805-30 that the acquirer applies.

An acquiree that elects pushdown accounting must apply it in its entirety; the acquiree cannot pick or choose which assets or liabilities to recognize in its separate financial statements. However, assets or liabilities that are the legal right or obligation of the parent or acquirer, rather than the acquiree, should not be pushed down unless they must be recognized in the acquiree’s financial statements in accordance with other GAAP (see Section A.11). In addition, expenses are not part of the acquirer’s basis in the assets acquired and liabilities assumed. Expenses incurred by the acquirer should not be pushed down to the acquiree’s separate financial statements unless the acquirer incurred such expenses on behalf of, or for the benefit of, the acquiree (see Section A.12).

An acquirer sometimes is not required to apply ASC 805-10, ASC 805-20, and ASC 805-30 to the acquiree’s assets acquired or liabilities assumed (e.g., the acquirer is an individual or an investment company). In such cases, the acquiree may nonetheless elect to apply pushdown accounting by recognizing in its separate financial statements the basis the acquirer would have recognized had it applied ASC 805-10, ASC 805-20, and ASC 805-30.

A.8.1 Measurement Period

ASC 805-10-25-15 states:

The measurement period is the period after the acquisition date during which the acquirer may adjust the provisional amounts recognized for a business combination. The measurement period provides the acquirer with a reasonable time to obtain the information necessary to identify and measure any of the following as of the acquisition date in accordance with the requirements of this Topic:

The identifiable assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree (see Subtopic 805-20)
The consideration transferred for the acquiree (or the other amount used in measuring goodwill in accordance with paragraphs 805-30-30-1 through 30-3)
In a business combination achieved in stages, the equity interest in the acquiree previously held by the acquirer (see paragraph 805-30-30-1(a)(3))
The resulting goodwill recognized in accordance with paragraph 805-30-30-1 or the gain on a bargain purchase recognized in accordance with paragraph 805-30-25-2.

We believe that if the acquiree is acquired in a business combination and elects to apply pushdown accounting, the acquirer’s measurement period also applies to the acquiree’s separate financial statements. That is, any adjustments made by the acquirer to the provisional amounts recognized in the business combination would also be reflected in the acquiree’s separate financial statements. We believe that the acquiree’s separate financial statements should also include any relevant disclosures if the initial accounting for the business combination is incomplete.

See Section 6.1 for more information about the measurement period and Section 7.11 for discussion of the disclosure requirements when the initial accounting for the business combination is incomplete.

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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.