In today’s dynamic business landscape, it is important to fully understand an acquisition as a method of business combination. In FASB ASC 805, corporations are required to account for business combinations by applying the acquisition method.

Understanding the acquisition method in business combinations

The acquisition method is based on a four-step method, which includes:

1. Identifying the acquirer

   The acquirer is the entity that transfers cash, incurs liabilities, or issues equity interest to obtain the acquiree’s net assets.

2. Determining the acquisition date

   The acquisition date is the date on which the acquirer obtains control of the acquiree. This is construed to be the date on which the acquirer transfers the consideration to the acquiree, obtains acquiree’s net assets, and assumes the acquiree’s liabilities.

3. Recognizing and measuring identifiable assets acquired, liabilities assumed, and noncontrolling interest in the acquiree

   On the acquisition date, all identifiable assets acquired, liabilities assumed, and any non-controlling interest in the acquiree are measured at fair value.

4. Recognizing and measuring goodwill or a gain from a bargain purchase

   Goodwill is recognized if the aggregate consideration transferred, plus fair value of previously held equity interest in the acquiree as of the acquisition date, plus fair value of non-controlling interest is greater than fair value of net identifiable assets.
   
   Gain from a bargain purchase is recognized if fair value of net identifiable assets is greater than the aggregate consideration transferred, plus fair value of previously held equity interest in the acquiree as of the acquisition date, plus fair value of noncontrolling interest.

Ensuring your ERP system is prepared to handle a business combination

Business combinations are complex, and their implications are far reaching. Citrin Cooperman’s Digital Services Practice can help ensure that your ERP system is prepared to handle the changes associated with these transactions. To learn more about key considerations for your technology investments during a business combination and how our team can help, reach out to your Citrin Cooperman advisor or at sales@citrincooperman.com.