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Comply With The Requirements Of ASC 805/IFRS3

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.

Purchase Price

Purchase Price Allocation Process

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:


Calculating the
purchase price (total
consideration paid)


Identifying the correct
assets acquired and
liabilities assumed


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.

Who will we need to get involved in this process?

Seller’s management

To get an understanding of what drives the business


Buyer’s management

To discuss what the buyer thinks it is acquiring


Buyer’s external accountants and/or tax advisors

Often, but not always


Other relevant parties

As required