Example BCG 2-36 provides an example of the general application of the acquisition method in a business combination.
Applying the acquisition method
Company A acquires all of the equity of Company B in a business combination. Company A applied the acquisition method based on the following information on the acquisition date:
  • Company A pays $100 million in cash to acquire all outstanding equity of Company B.
  • Company A incurs $15 million of expenses related to the acquisition. The expenses incurred include legal, accounting, and other professional fees.
  • Company A agreed to pay $6 million in cash if the acquiree’s first year’s postcombination revenues are more than $200 million. The fair value of this contingent consideration arrangement at the acquisition date is $2 million.
  • The fair value of tangible assets and assumed liabilities on the acquisition date is $70 million and $35 million, respectively.
  • The fair value of identifiable intangible assets is $25 million.
  • Company A intends to incur $18 million of restructuring costs by severing employees and closing various facilities of Company B shortly after the acquisition.
  • There are no measurement period adjustments.
  • Company A obtains control of Company B on the closing date.

How should the acquisition be recorded?
The following analysis excludes the accounting for any tax effects of the transaction.
Identifying the acquirer (BCG 2.3)
Company A is identified as the acquirer because it acquired all of Company B’s equity interests for cash. The acquirer can be identified based on the guidance in ASC 810-10.
Determining the acquisition date (BCG 2.4)
The acquisition date is the closing date.
Recognition and measurement on the acquisition date (BCG 2.5)
Company A would recognize and measure all identifiable assets acquired and liabilities assumed at the acquisition date. There is no noncontrolling interest because Company A acquired all of the equity of Company B. Company A would record the acquired net assets of Company B in the amount of $60 million ($95 million of assets less $35 million of liabilities), excluding goodwill, as follows (in millions):
Tangible assets
(plus) Intangible assets
(less) Liabilities
Acquired net assets
Company A would not record any amounts related to its expected restructuring activities as of the acquisition date because Company A did not meet the relevant criteria. The recognition of exit/restructuring costs would be recognized in postcombination periods.
Recognizing and measuring goodwill (BCG 2.6)
Acquisition costs are not part of the business combination and will be expensed as incurred. Company A would make the following entry (in millions):
Dr. Expense - acquisition costs
Cr. Cash
The consideration transferred is $102 million, which is calculated as follows (in millions):
Contingent consideration—liability
Total consideration transferred
1 The contingent consideration liability will continue to be measured at fair value in the postcombination period with changes in its value reflected in earnings.
The acquisition results in goodwill because the $102 million consideration transferred is in excess of the $60 million identifiable net assets acquired, excluding goodwill, of Company B. Goodwill resulting from the acquisition of Company B is $42 million and is measured as follows (in millions):
Total consideration transferred
Less: acquired net assets of Company B
Goodwill to be recognized
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