In response to longstanding questions about the accounting for deferred revenue in a business combination, the FASB has issued Proposed ASU Business Combinations (Topic 805) – Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.

The issue addressed in the Proposal arises because of conceptual and practical differences between the accounting for contract liabilities under the revenue recognition rules and the business combination rules.

The proposed rule would create an exception to the business combination rules and require the acquirer to measure a target’s contract assets and liabilities on the acquisition date using the measurement guidance for revenue recognition.

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