Government mergers occur when:

• Governments (or governments and non-governmental entities) cease to exist as legally separate entities and are combined to form one or more new governments.
  –OR–
• Legally separate government(s) or non-governmental entities cease to exist and their operations are absorbed into one or more continuing governments.

There is no significant consideration exchanged in government mergers.

New Governments

In a government merger that results in a new government (new state agency), the new state agency recognizes (as of the merger date; the date the combination becomes effective) the merging entities’ combined:

• Assets
• Deferred outflows of resources
• Liabilities
• Deferred inflows of resources

These financial statement elements are based on the carrying amounts reported in the separate financial statements of the merging entities.

The new state agency may need to adjust some carrying amounts to bring the accounting principles of the merging entities into alignment. Do not adjust financial data based on accounting estimates. Assets and liabilities should not be remeasured to acquisition value or fair value.

Continuing Governments

In a government merger that results in a continuing government (state agency), the state agency recognizes (in the reporting period of the combination, as if the entities had been combined at the beginning of the state agency’s fiscal year) the merging entities’ combined:

• Assets
• Deferred outflows of resources
• Liabilities
• Deferred inflows of resources
• Results of operations
• Cash flows

Measure the financial statement elements of the merging entities’ separate financial statements at the carrying amounts as of the merger date.

The state agency adjusts carrying amounts to bring the accounting principles of the merging entities into alignment where applicable. The adjustments are applied to the beginning balances carried forward into the state agency’s financial statements with an explanation for these adjustments included in the applicable notes to the financial statements. Do not adjust financial data based on accounting estimates.

Capital Asset Treatment

Capital assets identified for disposal by the merging entities (prior to the merger date) are measured based on use:

• If the state agency (new or continuing) will use the capital assets until the disposal occurs, use the carrying amounts as of the merger date to measure the capital assets.
• If the state agency (new or continuing) will not use the capital assets, evaluate the capital assets for impairment based on GASB 42 requirements to determine if the carrying amounts need adjustments. If necessary, make adjustments and disclose the explanation of the adjustments in all applicable notes to the financial statements.

Other Treatments

Eliminate receivables and payables between the merging entities before the government combination. Do not eliminate interfund services provided and used between functions — recognize them as revenues and expenses.