Purchase Price Allocation (ASC 805)

Purchase Price Allocation (ASC 805)

Adams Capital works with big 4 to sole practitioner accounting firms and delivers valuation results supported by a detailed written report and work papers specifically addressing ASC 805 requirements.  These deliverables can be easily adopted by auditors.  Our staff includes former big 4 professionals with audit experience who speak the same language.  We are therefore able to answer the questions quickly and efficiently.

ASC 805  applies to current accounting of business combinations. ASC 805 replaces FAS 141 which applied to business combinations prior to December 15, 2008.

The premise of value used in ASC 805 measurements is fair value, which is defined in ASC 820 and focuses on market participants and exit values. Appropriate implementation requires appraisal, accounting, and market knowledge.

Accounting for business combinations is complex, and best addressed by an independent, third party valuation firm that routinely assists clients with these sensitive matters.

Adams Capital determines the fair value of all assets acquired, liabilities assumed, and adjust any previous non-controlling interests to fair value. The analysis includes the valuation of contingent assets and intangible assets.

If a fixed asset appraisal is required to meet the fair value standard, Adams Capital’s extensive experience with fixed asset appraisal will be integrated into the overall purchase price allocation. We provide a single point of contact and coordinated data requests to simplify project ramp up.  We also use consistent assumptions and coordinated results for these complex multidisciplinary projects. Our work plan is designed to reduce management work effort through careful planning and execution by knowledgeable appraisal professionals.

Determining the fair value of any asset requires the appraiser to perform various advanced valuation methodologies while complying with FASB Statements. Proper compliance with ASC 805 and ASC 820 is critical to producing a valuation report that supports the audit process in a quick and efficient manner.

ASC 805 requires contingent consideration to be measured and added to total consideration. Adams Capital uses advanced measurement methods, such as Monte Carlo simulation and option analysis to determine contingent consideration fair value.

If the fair value of net assets acquired is less than the total consideration paid for the acquired entity, the difference is recorded as goodwill and tested annually for impairment according to ASC 350. If the fair value of net assets acquired exceeds the consideration paid, the entity recognizes a gain on bargain purchase. Both scenarios must be properly explained as to why they make sense in that specific transaction.

 

 

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