Determining the fair value of the transaction consideration, intangible assets, liabilities, and certain tangible assets as of the date of acquisition can be complex.
An independent valuation of the business interest (or assets) acquired is needed to allocate the value of the purchase consideration to the identifiable tangible and intangible assets acquired. The residual value is attributable to goodwill, which subsequently may need to be tested for impairment. Impairment testing is performed on goodwill and other long-lived assets.
The acquisition of a business requires an allocation of the purchase price for tax and/or financial reporting purposes. This means that the process consists of three main steps:
purchase price (total
Identifying the correct
assets acquired and
Calculating the Fair
Value of those
assets and liabilities
Once those three steps are done, the purchase price paid for the business is then allocated among the fair values of the identifiable assets (and liabilities). The amount of the purchase price and the values of the identifiable assets is then recorded on the financial statements as goodwill.
To get an understanding of what drives the business
To discuss what the buyer thinks it is acquiring
Often, but not always
Once the PPA is finalized, there is generally a need for annual impairment testing of goodwill. This is a function of the status of the company.Reach out, can we guide you
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