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1.6 Software acquired in a business combination
Publication date: 31 Dec 2021
us Software costs
It is common for software to be an identified intangible asset of the acquired entity in a business combination. ASC 805, Business Combinations, provides guidance on the identification and initial measurement of the identified intangible assets acquired in a business combination (refer to BCG 4); however, ASC 805-10-35-1 specifically indicates that the subsequent accounting is based on other GAAP, depending on the nature of the acquired asset.
Excerpt from ASC 805-10-35-1
In general, an acquirer shall subsequently measure and account for assets acquired, liabilities assumed or incurred, and equity instruments issued in a business combination in accordance with other applicable generally accepted accounting principles (GAAP) for those items, depending on their nature.
Once the fair value of any software acquired is measured and recorded upon acquisition, the guidance in ASC 985-20 or ASC 350-40 will apply to the post-acquisition accounting for the software depending on how the reporting entity uses the software, as discussed in SW 1.3 and SW 1.4. This determination is important because the post-acquisition accounting (including amortization and impairment), presentation, and disclosure requirements differ between software that is externally marketed and internal-use software.
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