Purchase Price Allocation is the process of allocating the Purchase Price Paid for Acquired Company to its Tangible Assets, Intangible Assets, and Assumed Liabilities.
Real Property: Land, Land Improvements, Buildings, Leasehold Interests
Personal Property and Related Assets: Machinery and equipment, Furniture and fixtures, Computer equipment, Vehicles, Construction in progress, Leasehold improvements
Intangible Assets: Trademarks, Patented and unpatented technology, Internal-use software, Customer relationships, Favorable supply agreements, Noncompete agreements, Licensing agreements
Liabilities: Deferred revenue, Contingent considerations, Contingent liabilities
Purchase price allocations performed for US tax purposes are done under the standard of fair market value, which is similar to fair value, but which also may differ in certain cases. IRS Section 1060 and Regulation under IRC Section 338 further identify the following seven classes of assets for tax purposes:
Class 1 Cash
Class 2 Marketable Securities
Class 3 Market-to-Market Assets and Accounts Receivable
Class 4 Inventory
Class 5 Assets not Otherwise Classified C
lass 6 Section 197 (intangible) Assets other than
Class 7 Assets Class 7 Goodwill and Residual Going Concern Value
These classifications are extremely important if a company is contemplating a like-kind exchange, a tax-free exchange of stock, or other corporate tax planning transactions.
Financial Reporting: ASC 805, Formerly SFAS 141r and 142
•It accurately reflect Components of a Company's Worth
•Most Intangible Assets are Amortized over their expected lives; This Expense can have a major impact on reported earnings
•Determine purchase price and total asset base
•Identify components of total asset base including tangible assets, intangible assets, and remainder as goodwill
•Allocate Value to Company's Asset Components - Ultimately to the Intangible Asset Valuation
•Identification is dictated by Industry
•Trademarks/names •Customer contracts & relationships
•Databases such as customer mailing lists
•In-process Research and Development ("IPRD")
Classifications into Categories:
•Intangible Assets Separable from Goodwill
•Intangible Assets Not Separable from Goodwill
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David Hahn, CVA, ASA, MAFF, CCIM, CM&AA, MBA
CVA - Certified Business Valuation Analyst
ASA - Accredited Senior Appraiser
CM&AA - Certified Merger & Acquisition Advisor
CCIM - Certified Commercial Investment Member
MAFF - Master Analyst in Financial Forensics
CA State Certified RE Appraiser, License #AG009828
CA State Licensed RE Broker, License #00902122
Business Valuation, Commercial Real Estate Appraisal.
Alpha Appraisal Consulting Group (AACG) serves in the area of Valuations, Business Valuation, 409A Valuation, Company Valuation, M&A Valuation, Financial Valuation, Commercial Appraisal, Commercial Real Estate Appraisal, Cost Segregation, Renewable Energy Valuation, Data Center Enterprise Valuation, HOA/Condo Reserve Study, Capital Assets Valuation, Patent Valuation, IP Valuation, Startup Capital Valuation, Bankruptcy Valuation, Estate/Trust Tax Valuation, Cannabis Property & Business Valuation, and Fairness Opinion throughout all States of USA.
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