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To qualify for the acquisition method (ASC 805), the acquired entity must meet the definition of a business. Otherwise, the transaction is accounted for as an asset acquisition. When substantially all of the fair value of gross assets acquired is concentrated in a single asset (or a group of similar assets), the assets acquired would not present a business. To be considered a business, an acquisition must include an input and a substantive process that together significantly contribute to the ability to create outputs.
Asset acquisitions are measured and reported based on cost and reflect the following:
For example, when Celgene Corporation acquired all of the outstanding shares of Impact Biomedicines, Inc., in 2018, the acquisition was reported Celgene's 10-Q as follows:
Problem 1: What potential accounting complexities (and costs) does a company avoid when it acquires another company that does not qualify as a business?
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