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The Properly Documented Purchase Price Allocation

As now required by ASC 805, we were recently engaged to assist a Silicon Valley-based company to first directly value the purchased intangible assets and then assist corporate accounting in allocating the purchase price. It is no longer acceptable to bunch the excess purchase price over book value and simply title the “bundle” as goodwill. Rather, accounting principles require that intangible assets be separately identified and discretely valued. We have identified and valued such assets as:

  • Customer lists

  • Royalty agreements

  • Corporate brands

  • Patents

  • Existing technology

  • In-process R&D

  • Trademarks

  • Covenants not to Compete

Like most of the analysis work we do, we were able to apply both market approaches and income approaches (various methods) to estimate value and reconcile a reasoned and well-documented valuation opinion. We were also able to provide remaining useful life analyses and assist corporate accounting in accounting for the purchase in consolidation. All of our work was timely prepared to allow the client to meet the reporting deadlines for SEC Form 10-Q and S-8 There are several technical issues that deserve appropriate attention. That is, industry vs. subject company weighted average cost of capital (“WACC”), different equity discount rates to recognize the different risk in asset classes, and appropriate testing of forecast cash flows. A specialized area of practice, there is also much discussion about the requirement to “separate” the valuation opinion/professional from the company’s independent accountant and management. At ABA we do not provide audit or review opinions and do not report on company financial statements. Valuations play a part in transactions, taxation, and litigation. For additional information or advice on a current situation, please do not hesitate to call.

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