The purpose of conducting a purchase price allocation is to meet the requirements under Financial Accounting Standards 141. The report we provide will assist the new ownership’s management in its allocation of the total purchase price among the assets acquired for financial statement reporting purposes. It is may be used for tax reporting purposes. Below are some comments on both tax and financial regulations. Please consult your tax/audit/CPA for the must current translation of accounting and tax regulations.
The provisions of this Statement apply to all business combinations initiated after June 30, 2001. There are three major provisions of SFAS 141:
- All business combinations must be accounted for using the purchase method.
- Intangibles must be recognized as assets apart from goodwill if they meet one of two criteria: the contractual-legal criterion or the separability criterion.
- When the amounts of goodwill and intangibles assets acquired are significant in relation to the purchase price paid, disclosure of other information about those assets is required, such as the amount of goodwill by reportable segment and the amount of the purchase price assigned to each major intangible asset class.
Business combinations are recorded at cost. Cost is determined as the fair value of the net assets acquired or as the fair value of the consideration given, whichever is more objectively determinable. In exchanges involving cash, the assets are recorded at the amount of cash disbursed plus liabilities assumed, including off-balance sheet liabilities recorded by the purchaser at the time of the transaction. Acquired assets are recorded at their fair value. Any excess of the purchase price over the fair value of identifiable tangible and intangible assets acquired less liabilities assumed is recorded as goodwill.