ASC 805 business combinations explained

ASC 805 and IFRS 3 were developed together and are largely the same, but several differences matter in practice, especially the noncontrolling interest, measurement period adjustments and contingencies. This guide explains the acquisition method under US GAAP, the screen test for whether a business has been acquired, and works through a purchase.

By Hamza Fida, Chartered Accountant. Reviewed by Mirza Fahad Baig, Chartered Accountant. 3 minute read.

Short answer

ASC 805 is the US GAAP topic on business combinations. When a company obtains control of a business, it applies the acquisition method: it identifies the acquirer and acquisition date, recognizes the identifiable assets acquired and liabilities assumed at fair value, measures any noncontrolling interest at fair value, and recognizes goodwill or a bargain purchase gain. Acquisition costs are expensed. Measurement period adjustments are recognized in the period they are determined, not retrospectively.

At a glance

Applies to
Obtaining control of a business
Method
Acquisition method
Noncontrolling interest
At fair value (full goodwill)
Acquisition costs
Expensed
Measurement period adjustments
In the current period
Excel
Purchase price allocation model
ASC 805 business combinations explainedApplies to: Obtaining control of a business; Method: Acquisition method; Noncontrolling interest: At fair value (full goodwill); Acquisition costs: Expensed; Measurement period adjustments: In the current period; Excel: Purchase price allocation model.KEY FACTS AT A GLANCEASC 805 business combinations explainedApplies toObtaining control of abusinessMethodAcquisition methodNoncontrolling interestAt fair value (fullgoodwill)Acquisition costsExpensedMeasurement period adjustmentsIn the current periodExcelPurchase price allocationmodelTax BakersASC 805 business combinations explainedApplies to: Obtaining control of a business; Method: Acquisition method; Noncontrolling interest: At fair value (full goodwill); Acquisition costs: Expensed; Measurement period adjustments: In the current period; Excel: Purchase price allocation model.KEY FACTS AT A GLANCEASC 805 business combinationsexplainedApplies toObtaining control of a businessMethodAcquisition methodNoncontrolling interestAt fair value (full goodwill)Acquisition costsExpensedMeasurement period adjustmentsIn the current periodExcelPurchase price allocation modelTax Bakers
Key facts at a glance, as set out in this guide.

Is it a business or an asset acquisition?

Since ASU 2017-01, a screen comes first: if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar assets, the set is not a business. Otherwise, it is a business only if it includes, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. Asset acquisitions are accounted for by allocating cost to the assets on a relative fair value basis, with no goodwill, transaction costs capitalized, and in-process research and development expensed unless it has an alternative future use.

How does the acquisition method work under ASC 805?

  1. Identify the acquirer.
  2. Determine the acquisition date, when control is obtained.
  3. Recognize and measure the identifiable assets acquired, liabilities assumed and any noncontrolling interest.
  4. Recognize goodwill, or a gain from a bargain purchase.

A worked example

From consideration to goodwill under ASC 805 ($ million)From consideration to goodwill under ASC 805 ($ million)650Consideration+150NCI atfair value-400Book netassets-240Fair valueuplifts+60Deferredtax220Goodwill
The noncontrolling interest at fair value gives full goodwill.

A company pays $650 million, including contingent consideration with a fair value of $50 million, for 80% of a competitor. The competitor's book net assets are $400 million; fair value adjustments add $240 million, mostly customer relationships and a brand, with a deferred tax liability of $60 million. The noncontrolling interest's fair value is $150 million. Goodwill is $650 + $150 - $580 = $220 million. Under IFRS, the company could instead have measured the noncontrolling interest at its share of net assets and recognized goodwill of $186 million. The Purchase price allocation model (Excel) shows both.

How does ASC 805 differ from IFRS 3?

AreaASC 805IFRS 3
Noncontrolling interestFair value onlyFair value or proportionate share, deal by deal
Measurement period adjustmentsRecognized in the period determinedRetrospective, restating the acquisition date amounts
ContingenciesFair value if determinable; otherwise if probable and estimablePresent obligations at fair value, even if not probable
Contract assets and liabilities from customer contractsMeasured under ASC 606, as the acquiree wouldFair value
Goodwill after acquisitionNot amortized, except private company alternativeNever amortized

How is the acquirer identified?

Usually the entity that transfers cash or other assets, or issues its shares, and obtains control. In a share-for-share merger, the acquirer is often the entity whose former owners hold the larger share of the combined company, whose owners control the board, or whose management runs the combined business. A new entity formed to effect the combination is not usually the acquirer if it issues shares.

What is pushdown accounting?

When an acquirer obtains control, the acquired company may elect to apply pushdown accounting in its own separate financial statements, restating its assets and liabilities to the acquirer's new basis, including goodwill. The election is available each time control changes and, once made, is irrevocable.

How is contingent consideration treated?

At fair value at the acquisition date as part of the consideration. If classified as a liability, it is remeasured at fair value each period with changes in earnings; if classified as equity, it is not remeasured. Changes from facts that existed at the acquisition date and are learned during the measurement period adjust goodwill instead.

What is the measurement period?

Up to one year from the acquisition date. Adjustments to provisional amounts are recognized in the reporting period in which they are determined, including the effect on earnings of any depreciation or amortization that would have been recognized earlier, with disclosure of the amounts. See IFRS 3 explained, ASC 350 goodwill and ASC 810 consolidation.

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Questions people ask

What is ASC 805?

The US GAAP topic on business combinations, requiring the acquisition method when a company obtains control of a business.

How is the noncontrolling interest measured under ASC 805?

At fair value at the acquisition date, so goodwill includes the noncontrolling interest's share.

How are measurement period adjustments recognized under US GAAP?

In the reporting period in which they are determined, not retrospectively.

Is an acquisition of a single building a business combination?

Usually not. If substantially all the fair value is in a single asset or group of similar assets, it is an asset acquisition.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. FASB Accounting Standards Codification: Topic 805, Business Combinations
  2. FASB Accounting Standards Codification: Topic 810, Consolidation

Rules and fees change. If you are reading this long after October 4, 2026, confirm the figures with the source before you rely on them.

ASC 805 and 810ASC 810 consolidation explainedIFRS 3IFRS 3 business combinations explainedASC 350Goodwill and intangible assets under ASC 350

More in ASC 805 and 810

TopicAll 3 guides in ASC 805 and 810

This guide is general information. It is not tax or legal advice for your situation.