7.4 Consideration Transferred, Including Contingent Consideration
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: . . .
b. The acquisition-date fair value of the total consideration transferred and the acquisition-date fair value
of each major class of consideration, such as the following:
1. Cash
2. Other tangible or intangible assets, including a business or subsidiary of the acquirer
3. Liabilities incurred, for example, a liability for contingent consideration
4. Equity interests of the acquirer, including the number of instruments or interests issued or issuable
and the method of determining the fair value of those instruments or interests.
c. For contingent consideration arrangements, 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. . . .
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:
- For each reporting period after the acquisition date until the entity collects, sells, or otherwise loses the right to a contingent consideration asset, or until the entity settles a contingent consideration liability or the liability is cancelled or expires, all of the following:
- Any changes in the recognized amounts, including any differences arising upon settlement
- Any changes in the range of outcomes (undiscounted) and the reasons for those changes
- The disclosures required by Section 820-10-50. . . .
ASC 805-30-50-1 requires acquirers to disclose “[t]he acquisition-date fair value of the total
consideration transferred and the acquisition-date fair value of each major class of consideration.”
The consideration transferred from the acquirer to the seller is commonly in the form of cash, equity
instruments of the acquirer, or a combination of both. However, the consideration can take other forms,
such as noncash assets or liabilities incurred (e.g., contingent consideration or a seller note).
Connecting the Dots
Cash flows related to the acquisitions of businesses, PP&E, and other productive assets are
presented as investing activities in the statement of cash flows. For a business combination, all
cash paid to purchase a business is shown as a single line item, net of any cash acquired. After
an acquisition, the cash flows of the acquirer and acquiree are combined and presented in a
consolidated statement of cash flows.
An entity may also need to consider other financial reporting implications of a
business combination, depending on the nature and terms of the transaction. For example,
any noncash effects of an acquisition that involves noncash consideration must be
disclosed in a narrative format or summarized in a schedule.
See Section 7.5 of
Deloitte’s Roadmap Statement of Cash
Flows for more information about
issues related to the presentation of cash flows in
a business combination.