B.1 Overview and Scope
B.1.1 Overview of Common-Control Transactions
A common-control transaction is typically a transfer of net assets or an
exchange of equity interests between entities under the control of the same
parent. While a common-control transaction is similar to a business combination
for the entity that receives the net assets or equity interests, such a
transaction does not meet the definition of a business combination because there
is no change in control over the net assets. Therefore, the accounting and
reporting for a transaction between entities under common control is outside the
scope of the business combinations guidance in ASC 805-10, ASC 805-20, and ASC
805-30 and is addressed in the “Transactions Between Entities Under Common
Control“ subsections of ASC 805-50. Since there is no change in control over the
net assets from the parent’s perspective, there is no change in basis in the net
assets. ASC 805-50 requires that the receiving entity recognize the net assets
received at their historical carrying amounts, as reflected in the ultimate
parent’s financial statements. ASC 805-50 does not specifically address the
accounting by the transferring entity. In the absence of guidance, certain
practices have developed regarding the reporting by the transferring entity in
its separate financial statements.
A common-control transaction has no effect on the parent’s consolidated
financial statements. The net assets are derecognized by the transferring entity
and recognized by the receiving entity at their historical carrying amounts in
the ultimate parent’s or controlling shareholder’s financial statements. Any
difference between the proceeds transferred or received and the carrying amounts
of the net assets is recognized in equity in the transferring and receiving
entities’ separate financial statements and eliminated in consolidation.
Therefore, the guidance in the “Transactions Between Entities Under Common
Control“ subsections of ASC 805-50 and the following sections of this appendix
applies only to the separate financial statements of an entity that engages in a
common-control transaction.
ASC 805-50 also provides guidance addressing whether the receiving entity should report the net assets
received prospectively from the date of the transfer or retrospectively for all periods presented. If the
recognition of the net assets results in a “change in the reporting entity,“ the receiving entity presents
the transfer in its separate financial statements retrospectively, similarly to a pooling of interests. If not,
the receiving entity presents the transfer in its separate financial statements prospectively from the
date of the transfer. ASC 805-50 does not specifically address the reporting by the transferring entity;
however, the transferring entity usually presents the transfer as a disposal on the date of the transfer in
its separate financial statements.
B.1.2 Scope
ASC 805-50
05-4 As noted in paragraph 805-10-15-4(c), the guidance related to business combinations does not apply to
combinations between entities or businesses under common control.
15-5 The guidance in the Transactions Between Entities Under Common Control Subsections applies to all
entities.
15-6A The guidance in the Transactions between Entities under Common Control Subsections does not apply
to the initial measurement by a primary beneficiary of the assets, liabilities, and noncontrolling interests of a VIE
if the primary beneficiary of a VIE and the VIE are under common control. Guidance for such a VIE is provided in
Section 810-10-30.
15-6B Mergers and acquisitions between or among two or more NFPs, all of which benefit a particular group of
citizens, shall not be considered common control transactions solely because those entities benefit a particular
group. The mission, operations, and historical sources of support of two or more NFPs may be closely linked to
benefiting a particular group of citizens. However, that group neither owns nor controls the NFPs.
The guidance in the “Transactions Between Entities Under Common Control”
subsections of ASC 805-50 applies to the separate financial statements of an
entity that engages in a common-control transaction. However, ASC 810-10-30-1
addresses how a primary beneficiary of a VIE should initially measure the VIE’s
assets, liabilities, and noncontrolling interests when the primary beneficiary
and the VIE are under common control. That guidance, which states as follows, is
similar to that in ASC 805-50:
If the primary beneficiary of
a variable interest entity (VIE) and the VIE are under common control, the
primary beneficiary shall initially measure the assets, liabilities, and
noncontrolling interests of the VIE at amounts at which they are carried in
the accounts of the reporting entity that controls the VIE (or would be
carried if the reporting entity issued financial statements prepared in
conformity with generally accepted accounting principles [GAAP]).