Determining whether an acquired group of assets is a business has proven to be one of the more challenging aspects of applying the current M&A accounting guidance. For many transactions, the determination will be straightforward. However, the current guidance will cause many transactions that are "on the edge," and previously would have been accounted for as asset acquisitions, to be accounted for as business combinations. Why is this determination important. While the measurement of assets and liabilities in both types of transactions will yield similar results, several differences can arise that can have a significant impact on a company's earnings, financial ratios, and business metrics.
This edition of Mergers & acquisitions — a snapshot, identifies relevant considerations in determining whether a business has been acquired and why it matters not only upon acquisition but also for disposals and public company reporting.
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