Treatment of Transaction Expenses

In a business combination under Accounting Standards Codification Section 805, Business Combinations (“ASC 805”), transaction expenses are generally excluded from the consideration paid. Instead, such costs are usually accounted for as expenses in the period they are incurred (per ASC 805-10-25-23).
However, in an asset acquisition, transaction expenses are generally included in the consideration paid and are capitalized and subsequently depreciated over the life of the acquired assets.

Treatment of Goodwill

In a business combination under ASC 805, the resulting purchase price allocation may result in the recognition of goodwill, which is the excess of purchase price over the estimated fair value of the identified acquired assets.

In an asset acquisition, goodwill is not recognized. Instead, any excess consideration paid over the fair value of the assets acquired is allocated to the non-financial and non-working capital identifiable assets (both tangible and intangible assets), based on their relative fair values, to equate to the consideration paid.

Treatment of Bargain Purchase

In a business combination under ASC 805, the resulting purchase price allocation may result in the recognition of a bargain purchase gain, which is the excess of the estimated fair value of the identified acquired assets over the purchase price.

In an asset acquisition, a bargain purchase is not recognized. Instead, any bargain purchase element would typically be shown as a reduction in the relative fair value of the non-financial and non-working capital identifiable assets (both tangible and intangible assets), based on their relative fair values, to equate to the consideration paid.

Treatment of Non-Controlling Interests

In a business combination under ASC 805, non-controlling interest in a transaction is recognized and measured at fair value as of the acquisition date. However, in an asset acquisition, a non-controlling interest can either be measured at its fair value, or the acquirer may choose to record the non-controlling interest at its carrying value.

Measurement Period

In a business combination under ASC 805, the acquirer has a period in which it can identify and measure the fair value of the assets acquired and liabilities assumed, and make adjustments as necessary. This period, commonly known as the measurement period, cannot exceed one year from the acquisition date.
However, an asset acquisition does not have a measurement period like a business combination does. Instead, in an asset acquisition, assets, and liabilities generally must be measured by the next reporting cycle after the acquisition.

Identifiable tangible and intangible assets should be valued in both a business combination and an asset acquisition. Acquiring companies should be aware of this similarity and differences between the two types of transactions. While the list above is not exhaustive, it does provide an overview of the most commonly-encountered differences.