FAR, Financial Accounting and Reporting

Sources for Business Combinations

Last reviewed 2026-10-06

The standards and authorities behind PocketCPA's FAR lessons on Business Combinations. The topic rests on ASC 805.

About this topic

One company buys another and takes charge of it. That is a business combination, and this Topic says how the buyer records it.

A business combination is a transaction or other event in which an acquirer obtains control of one or more businesses (ASC 805-10-20).

Key points

A business combination is accounted for using the acquisition method: identifiable assets and liabilities are measured at fair value.
Goodwill is the excess of consideration transferred over the net fair value of identifiable assets and liabilities acquired.
A bargain purchase gain (negative goodwill) is recognized immediately in earnings after reassessing all amounts.
Acquisition-related costs are expensed as incurred, not capitalized.

What the lessons cover

The acquisition method in four steps (ASC 805-10-05-4)
Step 1: Identify the acquirer (ASC 805-10-25-4)
Step 2: Determine the acquisition date (ASC 805-10-25-6)
Step 3: Recognize and measure the identifiable assets, liabilities, and NCI (ASC 805-20-25-1)
Step 4: Recognize and measure goodwill or a bargain purchase gain (ASC 805-30-30-1)
Contingent consideration (ASC 805-30-25-5)
Acquisition-related costs (ASC 805-10-25-23)
Measurement period (ASC 805-10-25-13)
Disclosures (ASC 805-10-50-1)

Authoritative references

ASC 805-10-05-4, the acquisition method in four steps.
ASC 805-10-20 and 805-10-25-1, the definition of a business combination as obtaining control of one or more businesses, and the single acquisition method model.
ASC 805-10-25-4 and 25-5, step 1: identify the acquirer, using the controlling-financial-interest guidance in ASC 810-10.
ASC 805-10-25-6 and 25-7, step 2: the acquisition date, usually the closing date.
ASC 805-10-25-10, a previously held equity interest remeasured to fair value at the acquisition date, with the gain or loss in earnings.
ASC 805-10-25-13 through 25-17, the measurement period, capped at one year, and the adjustment of provisional amounts against goodwill with the catch-up in earnings.
ASC 805-10-25-23, acquisition-related costs expensed separately.
ASC 805-10-50-1 through 50-5 and 50-7, disclosures: the combination itself, the exceptions for the general information, the events after the reporting date, and the additional information needed to meet the objectives.
ASC 805-10-55-3A, 55-4, 55-5A, 55-5D and 55-5E, the definition of a business, including the screen for a concentration in a single identifiable asset and the criteria for a set with and without outputs.
ASC 805-10-55-11 through 55-15, the factors identifying the acquirer: the entity that transfers the assets or incurs the liabilities, relative voting rights, relative size, and which entity initiated the combination.
ASC 805-20-25-1, step 3: recognize and measure the identifiable assets, liabilities, and noncontrolling interest.
ASC 805-20-25-2, 25-3 and 25-10, the conditions for an item to be recognized, including the contractual-legal or separability criterion.
ASC 805-20-25-17, 25-27 and 25-28C, the exceptions to recognition, including indemnification assets and contract assets and liabilities.
ASC 805-20-30-1, 30-11 and 30-12, measurement at acquisition-date fair value and the limited set of exceptions measured under other guidance.
ASC 805-20-30-27 through 30-30 and 805-20-65-3, contract assets and contract liabilities acquired, applied as if the acquirer had originated the contract, the two practical expedients, and the effective dates under ASU 2021-08.
ASC 805-20-35-4B, the rule for government-assisted acquisitions of financial institutions.
ASC 805-20-50-1, 50-4A and 50-5, disclosure of what was acquired, of incomplete initial accounting, and of a qualitative assessment of the estimated effect where application of a new standard is reasonably possible.
ASC 805-30-25-2 through 25-5, the gain from a bargain purchase in earnings after reassessment, and contingent consideration.
ASC 805-30-30-1 and 30-7, step 4: goodwill or a bargain purchase gain, and consideration transferred measured at acquisition-date fair value.
ASC 805-30-35-1, the classification of contingent consideration as a liability, an asset, or equity, which drives the later accounting.
ASC 805-30-50-1 and 50-4, the consideration and goodwill disclosures, including the goodwill rollforward and adjustments after the acquisition date.
ASC 805-40, reverse acquisitions, where the legal acquirer is the accounting acquiree.

How PocketCPA uses these sources

Every lesson is written in original words and cites the paragraph each rule comes from. No standard's text is reproduced. How lessons and questions are written and checked is set out in our methodology.