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“Clarifying the Definition
of a Business...”
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Valuation Vantage
Fall 2016 | 5
Examples could include technology, mineral interests, real estate,
or in-process research and development.
2. A set that has outputs – When a set has outputs (that is
there is a continuation of revenue before and after the
transaction), the set would have both an input and a
substantive process that together contribute to the ability to
create outputs when any of the following are present:
a. An organized workforce that has the necessary
skills, knowledge, or experience to perform an
acquired process (or group of processes) that
when applied to an acquired input or inputs, is
critical to the ability to continue producing outputs.
b. The acquired process (or group of processes), when
applied to an acquired input or inputs, contributes
to the ability to continue producing outputs and
cannot be replaced without significant cost, effort,
or delay in the ability to continue producing outputs.
c. The acquired process (or group of processes),
when applied to an acquired input or inputs,
contributes to the ability to continue producing
outputs and is considered unique or scarce.
3. Assets that should not be considered part of a set - The
following assets should not be combined into a single
asset or considered similar assets:
a. Tangible and intangible assets (for example, real
estate and in-place lease intangibles).
b. Identifiable intangible assets in different major
intangible asset classes (for example, customer-
related intangibles, trademarks, and in-process
research and development), except for groups of
identifiable intangible assets that are recognized
and measured as a single identifiable asset such as
complementary intangible assets that have similar
useful lives.
c. Financial and nonfinancial assets.
d. Different major classes of financial assets (for
example, cash, accounts receivable, and marketable
securities).
e. Different major classes of tangible nonfinancial
assets (for example, inventory, manufacturing
equipment, and automobiles) other than those that
meet the criterion to be considered a single asset.
The proposed ASU provided the following examples of acquired
sets of assets that would not be considered a business:
1. Set of single-family homes and the associated in-place leases
2. Drug compound used to treat a disease
3. Idled manufacturing facility
4. License of distribution rights
KEY TAKEAWAYS
The proposed ASU would be applied prospectively to any
transaction that occurs after its effective date and may result
in more transactions classified as asset acquisitions across all
industries—especially the technology, oil and gas, real estate,
and pharmaceutical industries.
NEXT STEPS
This proposed ASU is part of a larger FASB project that will:
1. Clarify the guidance for partial sales or transfers of assets.
2. Consider whether there are differences in the acquisition
and de-recognition guidance for assets and businesses that
could be aligned.
The effective date for the proposed ASU likely will be December
15, 2017 for public companies. For private companies, the
effective dates will likely be December 15, 2018 and December
15, 2019, respectively, for annual and interim reporting periods.
Early adoption is likely to be permitted after December 15, 2016
with specific exceptions for private companies.