Allocation and Fair Market Appraisals, ASC 805/IAS 40
The Fair Market Value and Allocation of Assets within a Business Combination
Business owners and buyers have numerous reporting obligations concerning the reporting of fair market value, including ASC 805 or International Accounting Standards 40 (IAS 40), ASC 820, ASC 840, ASC 852, ASC 350, and ASC 360. Further, they have several reporting obligations concerning the allocation of value of assets within a business combination, including ASC 805 (or IAS 40), IRC 1060, and IRS MACRS Depreciation Schedules.
Each type of reporting obligations has its own set of requirements, definitions, and classifications.
A business combination is the various assets combined to create a business, which include intangibles (contracts, patents, etc.), good will, real property (fee and leased estates, etc.), personal property (machinery, vehicles, etc.), assets and liabilities, equity and debt, and the numerous IRS modified accelerated cost recovery system depreciation schedules (MACRS).
As “qualified appraisers” according to the IRS, Federal Appraisal provides reports to investors and taxpayers with the requisite appraisal documents and advisory support to meet all accounting, SEC, and IRS reporting obligations. Our allocation appraisals ensure compliance and add value by lowering reporting costs and taxes, providing our client with a sole-source for multi-discipline, high quality appraisals, consistent across multiple purposes and uses.
See the article written by FAC managing partner, Mark Pomykacz, MAI and qualified state-certified general real estate appraiser, on the topic of business combinations in real estate appraisal, “Relationships between the Overall Property and Its Parts, and the Three Approaches to Value ” published by the Appraisal Journal, Winter 2009.
ASC 805 Appraisals / IAS 40
The FASB ASC 805, or International Accounting Standards 40 (IAS 40), relates to the reporting of business combinations when a business is purchased. It requires properly supported claims concerning the value of the parts of a business combination. Basically, the purchase price must be allocated based on their market value, to various numerous assets and liabilities that comprise the business combination. All companies aiming to comply with GAAP requirements, must comply with ASC 805. ASC 805 became effective December 15, 2008. ACS 805 superseded Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards No. 141 and 141R (SFAS 141, SFAS 141R), and APB Opinion No. 16.
IAS 40 Investment Property applies to the accounting for property (land and/or buildings) held to earn rentals or for capital appreciation (or both). Investment properties are initially measured at cost, and with some exceptions, may be subsequently measured using a cost model for fair value model, with changes in the fair value under the fair value model being recognized in profit or loss.
We can assist with financial reporting requirements, estimating the fair value of a property’s tangible and intangible assets. Our analysis can further assist independent auditors, management specialists, or outside legal counsels, as well as regulatory or tax authorities. We are competent in AUD-603, Using the Work of an Auditor’s Specialist, AU-C Section 230, Audit Documentation, AU-C Section 315, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement, and AU-C Section 500, Audit Evidence.
Internal Revenue Code Section 1060 Purchase Price Allocation Appraisals
Allocation appraisals, when used for income tax reporting concerning the purchase of a business (a business combination), are sometimes called purchase price allocations. Internal Revenue Code (IRC) Section 1060, Special Allocation Rules For Certain Asset Acquisitions, require the total purchase price of a business combination be allocated among specifically defined classes of assets. The asset classes are:
- Class I – cash and general deposit accounts
- Class II – actively traded securities
- Class III – assets that are marked to market annually
- Class IV – inventory and property held for sale.
- Class V – assets that do not fall within the other classes
- Class VI – IRC Section 197 assets (intangible assets) except goodwill and going concern value
- Class VII – goodwill and going concern value
See Purchase Price Allocation for more information.
Internal Revenue Code MACRS Cost Segregation Appraisals Cost segregation appraisals allow taxpayers to save substantial amounts in income taxes, but only if their claims to the Service are properly supported. Federal Appraisal provides that support via our allocation appraisals.
See Cost Segregation for more information.