PURCHASE PRICE ALLOCATION - BUSINESS COMBINATIONS

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Purchase Price Allocation is the process of allocating the Purchase Price Paid for Acquired Company to its Tangible Assets, Intangible Assets, and Assumed Liabilities.

Tangible Assets:

Real Property: Land, Land Improvements, Buildings, Leasehold Interests        

Personal Property and Related Assets: Machinery and equipment, Furniture and fixtures,  Computer equipment, Vehicles, Construction in progress,  Leasehold improvements

Intangible Assets:

Trademarks, Patented and unpatented technology, Internal-use software, Customer relationships,  Favorable supply agreements, Noncompete agreements, Licensing agreements

Liabilities: Deferred revenue, Contingent considerations, Contingent liabilities

Purchase price allocations performed for US tax purposes are done under the standard of fair market value, which is similar to fair value, but which also amy differ in certain cases. IRS Section 1060 and Regulation under IRC Section 338 further indentify the following seven classes of assets for tax purposes:

Class 1 Cash         

Class 2 Marketable Securities       Class 

3 Market-to-Market Assets and Accounts Receivable         

Class 4 Inventory         

Class 5 Assets not Otherwise Classified  

Class 6 Section 197 (intangible) Assets other than        

Class 7 Assets    

Class 7 Goodwill and Residual Going Concern Value

These classifications are extremely important if a company is contemplating a like-kind exchange, a tax-free exchange of stock, or other corporate tax planning transactions.

Financial Reporting: ASC 805, Formerly SFAS 141r and 142           •It accurately reflect Components of a Company's Worth   •Most Intangible Assets are Amortized over their expected lives; This Expense can have a major impact on reported earnings

•Determine purchase price and total asset base   •Identify components of total asset base including tangible assets, intangible assets, and remainder as goodwill   •Allocate Value to Company's Asset Components - Ultimately to the Intangible Asset Valuation

•Identification is dictated by Industry   •Trademarks/names •Customer contracts & relationships   •Technology   •Workforce   •Patents   •Databases such as customer mailing lists   •Non-compete agreements   •In-process Research and Development ("IPRD")   •Goodwill

Classifications into Categories:

•Intangible Assets Seprable from Goodwill   •Intangible Assets Not Seprable from Goodwill