5.8 Noncash Assets Transferred as Consideration
ASC 805-30
30-8 The consideration transferred may include assets or liabilities of the acquirer that have carrying amounts
that differ from their fair values at the acquisition date (for example, nonmonetary assets or a business of
the acquirer). If so, the acquirer shall remeasure the transferred assets or liabilities to their fair values as of
the acquisition date and recognize the resulting gains or losses, if any, in earnings. However, sometimes the
transferred assets or liabilities remain within the combined entity after the business combination (for example,
because the assets or liabilities were transferred to the acquiree rather than to its former owners), and the
acquirer therefore retains control of them. In that situation, the acquirer shall measure those assets and
liabilities at their carrying amounts immediately before the acquisition date and shall not recognize a gain or
loss in earnings on assets or liabilities it controls both before and after the business combination.
An acquirer may transfer as consideration tangible or intangible assets whose fair value differs from
their carrying amounts in the acquirer’s financial statements as of the acquisition date. Examples include
financial assets, inventory, property, or intangible assets. An acquirer may also transfer a business
or subsidiary that includes liabilities. If the carrying amount of an asset (or liability) transferred to the
seller differs from the acquisition-date fair value of the asset, the acquirer recognizes a gain or a loss in
earnings (separately from the business combination transaction) for any difference between the asset’s
or liability’s acquisition-date fair value and its carrying amount.
Example 5-15
Acquisition of a Business by Transferring Noncash Consideration to the Seller
Company A enters into an agreement to acquire Company B for consideration of $1
million in cash and a building, both of which are
transferred to the seller. Company A accounts for the
transaction as a business combination. On the acquisition
date, the building’s carrying amount in A’s financial
statements is $100,000 and its fair value is $250,000. Under
ASC 805, the amount recognized as of the acquisition date
for B’s net identifiable assets is $700,000. The gain on the
building transferred and the goodwill recognized as part of
the acquisition are calculated as follows:
This measurement of goodwill would be the same if A had sold the building to a third party at its fair value and
included the cash received in the consideration transferred.
5.8.1 Noncash Assets That Are Used as Consideration and That Remain Within the Combined Entity
The consideration transferred may include noncash assets or liabilities that the acquirer transfers to
the acquiree rather than to the seller. Any assets (or liabilities) used as consideration that remain within
the combined entity must be measured at their carrying amounts in the acquirer’s financial statements
immediately before the acquisition date. As described in ASC 805-30-30-8, the acquirer is precluded
from recognizing a gain or loss in earnings on assets (and liabilities) that it controls both before and after
the business combination. This is true even if the acquirer obtains a controlling financial interest in, but
less than 100 percent of, an acquiree. If the acquisition is a partial acquisition and includes assets used
as consideration that stay within the combined entity, ASC 805 does not address how to measure the
noncontrolling interest. The example below illustrates one way to measure the noncontrolling interest,
although other alternatives may exist.
Example 5-16
Acquisition of a Business by Transferring Noncash Consideration to the Acquiree
Company A enters into an agreement to acquire an 80 percent interest in Company
B in exchange for A’s transfer of its wholly owned
subsidiary, Sub X, to B. The transaction is determined
to be a business combination, and A is identified as the
acquirer. On the acquisition date, Sub X’s fair value is
$4,000 and its carrying amount is $2,000. (This example
includes simplified assumptions and ignores the effects
of a discount for lack of control or income taxes.) The
fair value of B is $1,000. The diagram below illustrates
the ownership structure immediately before and after the
acquisition.
Before Acquisition
After Acquisition
Because A controls Sub X both before and after the acquisition, A must recognize Sub X’s assets and liabilities at their
carrying amounts (i.e., the transfer of Sub X to B is similar to a common-control transaction). Therefore, A cannot
recognize a gain or loss in earnings for the difference between the fair value and the carrying amount of Sub X’s assets
and liabilities. Company A accounts for the reduction in its ownership interest in Sub X from 100 percent to 80 percent
as an equity transaction under ASC 810-10-45-23 (i.e., as an adjustment to APIC).
Company A recognizes the following:
Because A was identified as the acquirer of B, the transaction would be accounted for as the acquisition of B by
Sub X in B’s stand-alone financial statements (i.e., as a reverse acquisition). Therefore, Sub X is the accounting
acquirer/legal acquiree and B is the accounting acquiree/legal acquirer. The consideration transferred in
the transaction is equal to 20 percent of Sub X, which was exchanged for 80 percent of B. In B’s stand-alone
financial statements, B’s net assets are recognized at their acquisition-date fair value of $1,000, and Sub X’s net
assets are recognized at their carrying amount of $2,000. The financial statements before the acquisition would
present the assets, liabilities, and operations of Sub X, and B would not be included in the financial statements
until the acquisition date. See Section 6.8 for more information about the accounting for reverse acquisitions.