The Financial Accounting Standards Board (FASB) has issued an update to U.S. Generally Accepted Accounting Principles that provides an alternative for private companies on accounting for intangible assets acquired in a business combination. This Accounting Standards Update (ASU) had been proposed by the Private Company Council and subsequently endorsed by the FASB.
ASU 2014-18, Business Combinations (Topic 805): Accounting for Identifiable Intangible Assets in a Business Combination, allows a private company to elect an accounting alternative for the recognition of certain intangible assets acquired in a business combination. In this alternative, a private company would no longer recognize the following separate from goodwill:
Customer-related intangible assets unless they are capable of being sold or licensed independently from the other assets of the business, and
Many customer-related intangible assets, because they are not capable of being sold or licensed independently from the other assets of the business, would not be separately recognized under this accounting alternative. However, some customer-related intangible assets that are capable of being sold or licensed independently would continue to be separately recognized.
All entities except for public business entities and not-for-profit entities can elect to utilize the accounting alternative provided in ASU 2014-18.
The decision to adopt the accounting alternative must be made upon the occurrence of the first transaction within the scope of this accounting alternative. If the transaction occurs in the first fiscal year beginning after December 15, 2015, the adoption will be effective for that fiscal year and all periods thereafter. If the transaction occurs in fiscal years beginning after December 15, 2016, the adoption will be effective in the interim period that includes the date of that first transaction and all periods thereafter. Early application is permitted for any interim and annual financial statements that have not yet been made available for issuance.
An entity that elects the accounting alternative in ASU 2014-18 must adopt the private company alternative to amortize goodwill as described in ASU 2014-02. However, an entity that elects the accounting alternative in ASU 2014-02 is not required to adopt the amendments in ASU 2014-18.
Please click here to view the full text of ASU 2014-18.
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