Purchase Price Allocation

If you are purchasing a business, AccuVal’s expertise at estimating the “fair values” of all identifiable tangible and intangible assets establishes the basis for depreciation and amortization after the transaction closes. We recognize that an important factor in the efficient and accurate execution of these engagements is upfront and proactive communication with you and your external auditors. We work to immediately identify the material assets that need to be appraised, confer with your auditors regarding methodology and meet critical deadlines.

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What is a purchase price allocation?
In an effort to bring consistency and transparency to business combinations, the Financial Accounting Standards Board (FASB) set forth very specific rules governing how these transactions must be accounted for under ASC 805 (Formerly SFAS 141R). It mandated that the total purchase price be allocated among all major assets and liabilities in proportion to their fair value, a purchase price allocation, and that a universal method of accounting be utilized to do this − called "the acquisition method".

AccuVal helps acquirers ensure the allocation of purchase price meets regulatory approval by providing independent appraisals that meet the stringent review of auditors and the SEC.

How are purchase price allocations performed?
First, AccuVal’s team seeks to understand the circumstances surrounding the acquisition to confirm that the event is, in fact, required to abide by FASB pronouncements. The target company, acquirer, acquisition date, book value and purchase price are identified, and rationale for the transaction is disclosed.

Once it is confirmed that the acquisition does require a purchase price allocation, AccuVal turns toward identifying all property, plant & equipment and all identifiable intangible assets and verifies that these assets meet the recognition criteria set forth by FASB. The team then moves to the most critical step in purchase price allocations – determining fair value. This technical phase requires a high degree of valuation acumen. Appraisers examine the market to determine the price that would be paid in an orderly transaction between market participants. It assumes an active market with knowledgeable and unrelated parties. But this process can be more complicated when there is not an active market to reference. In those instances, AccuVal abides by the guidelines set forth in FASB’s fair value hierarchy.

If the purchase price is greater than the fair value of net assets acquired, the remaining amount is recorded as goodwill which is tested annually for impairment according to ASC 350 (Formerly SFAS 142). All financial reporting considers the definition of Fair Value as laid out in ASC 820 (Formerly SFAS 157). If the purchase price is less than the fair value of net assets acquired, a gain from the transaction is recorded. AccuVal includes a narrative explaining the rationale behind either scenario in the allocation of purchase price analysis.

Why are purchase price allocations important?
According to FASB, the intent of this requirement is to better reflect the investments made in an acquired entity, improve the comparability of reported financial information and provide more complete financial information. Purchase price allocations also establish the basis for depreciation and amortization allowance.

Business Combination

An acquirer may obtain control of an acquiree in a variety of ways such as:

By transferring cash, cash equivalents or other assets (including net assets that constitute a business)
By incurring liabilities
By issuing equity interests
By providing more than one type of consideration
Without transferring consideration, including by contract alone

Trigger Events
Related Services
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You are a “for profit” entity undertaking a business combination or acquisition in any form (with the exception of the formation of a joint venture)

Business Need: Mergers and Acquisitions

Facilitate a merger or acquisition end-to-end by leveraging valuation, advisory and asset management expertise throughout all phases of the transaction

Tax Management — Federal Income Tax: Cost Segregation

Accelerate tax depreciation and cash flow by simultaneously performing a cost segregation analysis

Financial Reporting: Impairment Studies

Comply with annual financial reporting requirements by testing goodwill and other assets for impairment at least once a year and/or based upon certain “trigger events”

Tax Management — Property Tax: Consulting

Leverage the knowledge and results from our fair value analysis to contest property tax assessments

Tax Management — Federal Income Tax: Federal Income Tax Compliance Valuation

Understand the tax ramifications of a transaction by valuing tangible and intangible assets

View AccuVal's Appraisal Expertise by Asset Class:

Business Enterprise

Equity & Stock

Bonds

Intangibles & Intellectual Property

Machinery & Equipment

Inventory

Real Estate

Accounts Receivable

The following is needed to determine how AccuVal can help:

Copy of the Confidential Information Memorandum, Management Presentation and/or Asset Purchase Agreement (draft versions are acceptable)
A summary of the property, plant and equipment being acquired (e.g. a schedule of locations, electronic fixed asset files, summary of owned vs. leased real estate, etc.)
Upfront discussions with management to identify the assets to be valued and the number of reporting units

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