7.3 Assets Acquired and Liabilities Assumed | DART – Deloitte Accounting Research Tool

7.3.1 Indemnification Assets

ASC 805-20

50-1 Paragraph 805-10-50-1 identifies one of the objectives of disclosures about a business combination. To meet that objective, the acquirer shall disclose all of the following information for each business combination that occurs during the reporting period:

For indemnification assets, all of the following:
1. The amount recognized as of the acquisition date
2. A description of the arrangement and the basis for determining the amount of the payment
3. An estimate of the range of outcomes (undiscounted) or, if a range cannot be estimated, that fact and the reasons why a range cannot be estimated. If the maximum amount of the payment is unlimited, the acquirer shall disclose that fact. . . .

7.3.2 Receivables

ASC 805-20

50-1 Paragraph 805-10-50-1 identifies one of the objectives of disclosures about a business combination. To meet that objective, the acquirer shall disclose all of the following information for each business combination that occurs during the reporting period: . . .

b. For acquired receivables not subject to the requirements of Subtopic 326-20 relating to purchased financial assets with credit deterioration, all of the following:

1. The fair value of the receivables (unless those receivables arise from sales-type leases or direct financing leases by the lessor for which the acquirer shall disclose the amounts recognized as of the acquisition date)

2. The gross contractual amounts receivable

3. The best estimate at the acquisition date of the contractual cash flows not expected to be collected.

The disclosures shall be provided by major class of receivable, such as loans, net investment in sales-type or direct financing leases in accordance with Subtopic 842-30 on leases — lessor, and any other class of receivables. . . .

7.3.3 Assets and Liabilities Arising From Contingencies

ASC 805-20

50-1 Paragraph 805-10-50-1 identifies one of the objectives of disclosures about a business combination. To meet that objective, the acquirer shall disclose all of the following information for each business combination that occurs during the reporting period: . . .

d. For contingencies, the following disclosures shall be included in the note that describes the business combination:

1. For assets and liabilities arising from contingencies recognized at the acquisition date:

i. The amounts recognized at the acquisition date and the measurement basis applied (that is, at fair value or at an amount recognized in accordance with Topic 450 and Section 450-20-25)

ii. The nature of the contingencies.

An acquirer may aggregate disclosures for assets or liabilities arising from contingencies that are similar in nature.

2. For contingencies that are not recognized at the acquisition date, the disclosures required by Topic 450 if the criteria for disclosures in that Topic are met. . . .

In addition to the requirements in ASC 805, SEC registrants should consider the disclosure requirements in SAB Topic 5.Y, which addresses disclosures related to loss contingencies.

7.3.4 Intangible Assets

While ASC 805-20-50-1(c) requires disclosure of “[t]he amounts recognized as of the acquisition date for each major class of assets acquired and liabilities assumed,” ASC 350-30-50-1 provides more specific disclosure requirements for acquired intangible assets:

ASC 350-30

Disclosures in the Period of Acquisition

50-1 For intangible assets acquired either individually or as part of a group of assets (in either an asset acquisition, a business combination, or an acquisition by a not-for-profit entity), all of the following information shall be disclosed in the notes to financial statements in the period of acquisition:

For intangible assets subject to amortization, all of the following:
1. The total amount assigned and the amount assigned to any major intangible asset class
2. The amount of any significant residual value, in total and by major intangible asset class
3. The weighted-average amortization period, in total and by major intangible asset class.
For intangible assets not subject to amortization, the total amount assigned and the amount assigned to any major intangible asset class.
The amount of research and development assets acquired in a transaction other than a business combination or an acquisition by a not-for-profit entity and written off in the period and the line item in the income statement in which the amounts written off are aggregated.
For intangible assets with renewal or extension terms, the weighted-average period before the next renewal or extension (both explicit and implicit), by major intangible asset class.

This information also shall be disclosed separately for each material business combination or acquisition by a not-for-profit entity or in the aggregate for individually immaterial business combinations or acquisitions by a not-for-profit entity that are material collectively if the aggregate fair values of intangible assets acquired, other than goodwill, are significant.

In addition, ASC 350-30-50-2 through 50-5 provide disclosure requirements for intangible assets in periods after their acquisition.

7.3.4.1 In-Process Research and Development

Other than the requirement in ASC 805-20-50-1(c) for acquirers to disclose “[t]he amounts recognized as of the acquisition date for each major class of assets acquired and liabilities assumed,” ASC 805 does not specifically address disclosures related to IPR&D. However, acquirers must comply with the fair value measurement disclosure requirements in ASC 820-10-50.

7.3.5 Goodwill

ASC 805-30

50-1 Paragraph 805-10-50-1 identifies one of the objectives of disclosures about a business combination. To meet that objective, the acquirer shall disclose all of the following information for each business combination that occurs during the reporting period:

a. A qualitative description of the factors that make up the goodwill recognized, such as expected synergies from combining operations of the acquiree and the acquirer, intangible assets that do not qualify for separate recognition, or other factors. . . .

d. The total amount of goodwill that is expected to be deductible for tax purposes.

e. If the acquirer is required to disclose segment information in accordance with Subtopic 280-10, the amount of goodwill by reportable segment. If the assignment of goodwill to reporting units required by paragraphs 350-20-35-41 through 35-44 has not been completed as of the date the financial statements are issued or are available to be issued (as discussed in Section 855-10-25), the acquirer shall disclose that fact. . . .

50-4 Paragraph 805-10-50-5 identifies the second objective of disclosures about the effects of business combinations that occurred in the current or previous reporting periods. To meet the objective in that paragraph, the acquirer shall disclose the following information for each material business combination or in the aggregate for individually immaterial business combinations that are material collectively: . . .

b. A reconciliation of the carrying amount of goodwill at the beginning and end of the reporting period as required by paragraph 350-20-50-1. . . .

Further, ASC 350-20 requires entities to provide a reconciliation of the carrying amounts of goodwill at the beginning and end of the reporting period:

ASC 350-20

50-1 The changes in the carrying amount of goodwill during the period shall be disclosed, showing separately (see Example 3 [paragraph 350-20-55-24]):

The gross amount and accumulated impairment losses at the beginning of the period
Additional goodwill recognized during the period, except goodwill included in a disposal group that, on acquisition, meets the criteria to be classified as held for sale in accordance with paragraph 360-10-45-9
Adjustments resulting from the subsequent recognition of deferred tax assets during the period in accordance with paragraphs 805-740-25-2 through 25-4 and 805-740-45-2
Goodwill included in a disposal group classified as held for sale in accordance with paragraph 360-10-45-9 and goodwill derecognized during the period without having previously been reported in a disposal group classified as held for sale
Impairment losses recognized during the period in accordance with this Subtopic
Net exchange differences arising during the period in accordance with Topic 830
Any other changes in the carrying amounts during the period
The gross amount and accumulated impairment losses at the end of the period.

Entities that report segment information in accordance with Topic 280 shall provide the above information about goodwill in total and for each reportable segment and shall disclose any significant changes in the allocation of goodwill by reportable segment. If any portion of goodwill has not yet been allocated to a reporting unit at the date the financial statements are issued, that unallocated amount and the reasons for not allocating that amount shall be disclosed.

50-1A Entities that have one or more reporting units with zero or negative carrying amounts of net assets shall disclose those reporting units with allocated goodwill and the amount of goodwill allocated to each and in which reportable segment the reporting unit is included.

In addition, ASC 350-20-50 provides disclosure requirements for goodwill in periods after the business combination.

As Chapter 8 will discuss, a private company and not-for-profit entity can elect an alternative to account for goodwill. In such a case, the entity is required to amortize goodwill over a 10-year period unless it can demonstrate that a shorter life is more appropriate. A private company or not-for-profit entity that elects the accounting alternative must provide disclosures as follows:

ASC 350-20

50-4 The following information shall be disclosed in the notes to financial statements for any additions to goodwill in each period for which a statement of financial position is presented:

The amount assigned to goodwill in total and by major business combination, by major acquisition by a not-for-profit entity, or by reorganization event resulting in fresh-start reporting
The weighted-average amortization period in total and the amortization period by major business combination, by major acquisition by a not-for-profit entity, or by reorganization event resulting in fresh-start reporting.

50-5 The following information shall be disclosed in the financial statements or the notes to financial statements for each period for which a statement of financial position is presented:

The gross carrying amounts of goodwill, accumulated amortization, and accumulated impairment loss
The aggregate amortization expense for the period
Goodwill included in a disposal group classified as held for sale in accordance with paragraph 360-10-45-9 and goodwill derecognized during the period without having previously been reported in a disposal group classified as held for sale.

50-6 For each goodwill impairment loss recognized, the following information shall be disclosed in the notes to financial statements that include the period in which the impairment loss is recognized:

A description of the facts and circumstances leading to the impairment
The amount of the impairment loss and the method of determining the fair value of the entity or the reporting unit (whether based on prices of comparable businesses or nonprofit activities, a present value or other valuation technique, or a combination of those methods)
The caption in the income statement or statement of activities in which the impairment loss is included
The method of allocating the impairment loss to the individual amortizable units of goodwill.

50-7 The quantitative disclosures about significant unobservable inputs used in fair value measurements categorized within Level 3 of the fair value hierarchy required by paragraph 820-10-50-2(bbb) are not required for fair value measurements related to the financial accounting and reporting for goodwill after its initial recognition in a business combination or an acquisition by [a] not-for-profit entity.

7.3.6 Disclosure of Practical Expedients the Acquirer Uses for Recognizing and Measuring an Acquiree’s Contract Assets and Liabilities

ASC 805-20

50-5 Paragraph not used.

Pending content (Transition Guidance: ASC 805-20-65-3)

Editor’s Note: The content of paragraph 805-20-50-5 will be amended upon transition, together with the addition of the heading noted below:

Exceptions to the Measurement Principle

50-5 For any of the practical expedients in paragraph 805-20-30-29 that an acquirer uses, the acquirer shall disclose all of the following information:

The expedients that have been used
To the extent reasonably possible, a qualitative assessment of the estimated effect of applying each of those expedients.

ASU 2021-08 notes that upon its adoption, an acquirer is required to disclose any practical expedients it uses in recognizing and measuring an acquiree’s contract assets and contract liabilities from revenue contracts with customers and other contracts to which the provisions of ASC 606 apply, such as “contract liabilities from the sale of nonfinancial assets within the scope of Subtopic 610-20, that are recognized and measured using the guidance in Topic 606.” An acquirer is also required to disclose “[t]o the extent reasonably possible, a qualitative assessment of the estimated effect of applying each of those expedients.” See Section 4.3.13 for more information about the amendments made by ASU 2021-08.