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On the Radar

Business Combinations

December 2021
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On the Radar
Business Combinations

Entities frequently engage in acquisitions for various reasons. For example, they may be looking to grow in size, diversify their product offerings, or expand into new markets or geographies. The accounting for acquisitions can be complex and begins with a determination of whether a transaction is a business combination. ASC 805-10, ASC 805-20, and ASC 805-30 address the accounting for a business combination, which is defined in the ASC master glossary as “[a] transaction or other event in which an acquirer obtains control of one or more businesses.” Typically, a business combination occurs when an entity purchases the equity interests or the net assets of one or more businesses in exchange for cash, equity interests of the acquirer, or other consideration. However, the definition of a business combination applies to more than just purchase transactions; it incorporates all transactions or events in which an entity or individual obtains control of a business.