Financial Reporting Compliance
ASC 805 - Business Combinations
Purchase Price Allocation
According to GAAP, businesses are required to report all assets acquired in a business combination at fair value. Assets can be classified as either tangible or intangible assets (which includes goodwill). Any remaining purchase price beyond the value attributed to specific tangible and intangible assets is allocated to goodwill. As independent financial analysts, we identify and value intangible assets and goodwill that are conveyed in a business combination. Baker-Meekins works with Buyers and their auditors to perform purchase price allocation analyses.
What to Expect
Our analysis can be segregated into six parts:
- Calculating the amount to be allocated to intangible assets and to goodwill
- Determining the proper discount rate and cash flows to value the intangible assets
- Identifying the intangible assets to be valued
- Valuing the intangible assets
- Measuring the returns on tangible and intangible assets
- Reviewing our analysis with the Buyer’s management, the auditors and the audit firm’s valuation review team
We advise the Buyer to begin the purchase price allocation analysis as soon as possible, either preceding or immediately following the closing of the purchase and sale agreement. The analysis will likely require input from management and staff of both the Buyer and the acquired company, as well as input from the auditors. We will request documentation that will help us substantiate the value of the business and the identifiable intangible assets acquired.