In short
Buying a group of assets that isn't a business is an asset acquisition. The cost, including transaction costs, is allocated to the assets based on their relative fair values, and no goodwill is recognized.
Key takeaways
- If substantially all the fair value is in a single asset or a group of similar assets, the set isn't a business.
- In-process research and development with no alternative future use is expensed.
- In a business combination, by contrast, transaction costs are expensed and goodwill can arise.
Where it's tested
FAR: Business Combinations & Consolidations — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
Acquirer purchases 100% of Target for $1,200,000 cash. Target's identifiable assets have a fair value of $1,600,000 and liabilities assumed have a fair value of $500,000. What should Acquirer recognize?