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Chapter 6 — Other Acquisition Method Guidance

6.3 Accounting for Arrangements Entered Into Concurrently With the Business Combination

6.3 Accounting for Arrangements Entered Into Concurrently With the Business Combination

An acquirer and seller may enter into one or more other agreements in close proximity to, or simultaneously with, the business combination. For example, an acquirer and seller may enter into a business combination transaction as well as execute an ongoing supply, distribution, collaboration, or licensing agreement. Such agreements may be transitional (e.g., for a few months) or more long term. The acquirer should account for individual agreements in accordance with their nature and should specifically consider whether each agreement’s stated price reflects an amount that would be expected in the absence of a concurrent business combination. For example, the consideration for the business could be overstated while the pricing for the supply agreement could be understated or vice versa. Therefore, an entity may need to adjust the stated contractual amounts when recognizing each arrangement.