Government acquisitions occur when a government (state agency) acquires another entity (or the operations of another entity) in exchange for significant consideration. The acquired entity or its operation becomes part of the acquiring state agency’s legally separate entity.

Recognition and Measurement

The acquisition date is the date the acquiring state agency obtains control of the assets and becomes obligated for the liabilities of the acquired entity or its operation.

The acquiring state agency measures the assets, deferred outflows of resources, liabilities and deferred inflows of resources of the acquired entity at the acquisition value (which is the market-based price) on the acquisition date. The exceptions are:

• Employment benefit arrangements (such as compensatory leave, pensions, other postemployment benefits or termination benefits) that are carried over to the extent that the obligation for those benefits will be honored by the combined government (state agency). The recognition and measurement of these employee benefit arrangements are covered under:
  • GASB 16
  • GASB 45
  • GASB 47
  • GASB 68
• Solid waste landfill closure, post-closure costs or obligations for pollution remediation are measured and recognized in conformity with existing financial reporting requirements. The most relevant measures are based on an evaluation of the:
  • Facts and circumstances relating to each liability
    –AND–
  • Current costs that are estimated to be necessary to satisfy those obligations
• Investments (including derivative instruments) are reported on the financial statements at fair value.
• Deferred outflows of resources and deferred inflows of resources (except those relating to effective hedging arrangements in GASB 53, paragraph 20) are recognized at the carrying amount previously reported by the acquired entity.
  • Adjust deferred outflows of resources and deferred inflows of resources related to effective hedging arrangements in GASB 53, paragraph 20, to reflect the difference between the acquisition value and the carrying value of acquired hedged items.
  • Recognize a deferred outflow of resources or a deferred inflow of resources attributable to an effective hedge of an expected transaction in GASB 53, paragraph 29, at its carrying value.
  • Account for any remaining deferred outflows of resources or deferred inflows of resources associated with derivative instruments by the acquiring state agency in conformity with GASB 53, paragraph 23 (related to termination of hedge accounting).

The acquiring state agency must not recognize deferred outflows of resources (or goodwill for a non-governmental entity) from a previous acquisition transaction in which the acquired entity gave more consideration for the value of the net position acquired.

Consideration

Consideration is the sum (as of the acquisition date) of the assets remitted or the liabilities incurred to the former owners of the acquired entity and may include financial and non-financial assets and obligations (such as cash, investments, capital assets and note payables).

Contingent Consideration

Consideration provided is contingent upon specified events in the future. Follow GASB 62 for contingency accounting when reporting contingent considerations.

Consideration Provided Exceeds the Net Position Acquired

When consideration provided exceeds the net position acquired, report the difference as deferred outflows of resources and amortize it over the future periods in a systematic and rational manner, per GASB 69. If goodwill existed at the GASB 69 implementation date of fiscal 2015 and was not reclassified to deferred outflows of resources, implementation of GASB 85 requires this reclassification if a positive balance exists. If a negative balance exists, it is eliminated as a restatement of net position.

Periodically review and revise the estimate of the amortization period. The amortization period may be determined (for example) by considering the estimated remaining service life of the capital assets or technology acquired if the acquisition is largely based on the expected use of the capital assets or expected efficiencies of the technology or the expected contract period.

The following USAS entries are designed to address an acquisition reported in funds held outside the state treasury. For additional guidance on state agency acquisitions in funds held in the state treasury, contact your financial reporting analyst.

Accounting effect of above entries:

To Record Amortization Expense for the Current Year

Accounting effect of above entries:

Consideration Provided Less Than the Net Position Acquired

When consideration provided is less than the net position acquired, reduce the acquisition values assigned to non-financial, non-current assets for the excess of net position acquired over consideration given.

If the seller intends to accept a lower price in order to provide economic aid to the acquiring state agency without receiving equal value in return, the acquiring state agency recognizes a contribution from the acquired entity.

Acquisition Costs

Acquisition costs are the costs the acquiring state agency incurs to effect an acquisition (such as fees for accounting and legal services, valuation and other professional or consulting services).

Report acquisition costs as an expense/expenditure in the period the services are received and the costs incurred.

Intra-Entity Government Acquisitions

The acquiring state agency recognizes the assets, deferred outflows of resources, liabilities and deferred inflows of resources at the carrying amount of the acquired blended or discrete component unit.

The acquiring state agency reports the excess of the acquisition price over the carrying amount of the acquired entity as a special item on its separately issued AFR. In the ACFR, this item is reclassified as:

• Transfers (if the acquired entity is a blended component unit of the acquiring state agency)
• Expenditure/Expense (if the acquired entity is a discrete component unit of the acquiring state agency)

Reporting Government Acquisition on a Provisional Basis

If the measurement of assets, deferred outflows of resources, liabilities and deferred inflows of resources is not finalized by the fiscal year-end in which the acquisition occurs, the acquiring state agency recognizes the estimated/provisional amounts for the items not finalized and prospectively updates the estimated/provisional amount previously reported when new and more accurate information becomes available.