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Entities may choose to acquire assets, rather than construct or develop them through capital projects. This chapter discusses the accounting for acquisitions of an asset or group of assets in accordance with ASC 805-50.
Determining whether a transaction represents an asset acquisition or a business combination is a critical step as there are significant differences in the accounting. Most significantly, asset acquisitions are accounted for using a cost accumulation model, with the cost of the acquisition allocated to the acquired assets based on their relative fair values. In contrast, business combinations are accounted for using a fair value model, with any excess consideration transferred recognized as goodwill. See PPE 2.7 for a summary of significant accounting differences between asset acquisitions and business combinations.
Before applying the asset acquisition guidance of ASC 805-50, a reporting entity must first determine whether an acquired set represents (1) a business or (2) an asset or group of assets. See BCG 1 for the accounting for transactions that are within the scope of ASC 805 and a discussion of the difference between an acquisition of a business and an acquisition of an asset or group of assets.
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