IRC 409A Common Stock Valuation
This free, guided checker walks your team through the key decision points for IRC 409A Common Stock Valuation. Answer a few questions to see the likely approach and the evidence to document.
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Purchase Price Allocation in a Business Combination
This free, guided checker walks your team through the key decision points for Purchase Price Allocation in a Business Combination. Answer a few questions to see the likely approach and the evidence to document.
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This tool is a high-level valuation screening aid for general information only and is not a valuation, appraisal, accounting, tax or legal opinion. A defensible conclusion of value requires a qualified valuation specialist applying professional standards to entity-specific evidence.
The questions this tool walks you through
Here is what the checker asks and why each step matters. Prefer to talk it through? Contact us and we will help directly.
Does the acquired set of assets and activities meet the definition of a business, rather than being a single asset or a group of similar assets?
Apply the screen first: if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar assets, the set is not a business. The common trap is assuming any going operation is a business without testing for a substantive process that could create outputs.
Account for the transaction as an asset acquisition, allocating cost to the assets acquired on a relative fair value basis with no goodwill under ASC 805-50-30.
Official guidance: FASB Accounting Standards Codification
Has a single acquirer obtained control of the acquired business, and is the acquisition date on which control transfers identified?
The acquirer is the combining entity that obtains control, and the acquisition date fixes the facts and the measurement date for every fair value in the allocation. Where control is shared or contingent, confirm the governance and rights before treating the transaction as a business combination, because the wrong date or acquirer distorts the entire allocation.
Do not apply the acquisition method; reassess whether the arrangement is a joint arrangement, an equity-method investment, or an asset acquisition under the relevant standard.
Official guidance: FASB Accounting Standards Codification
How has the total consideration to be allocated been measured at the acquisition date?
The amount you allocate is the consideration transferred plus any noncontrolling interest and any previously held equity interest, each at acquisition-date fair value. The frequent error is recording contingent consideration at the expected payout rather than fair value, or omitting the fair value of a previously held interest, both of which distort goodwill.
Fix the consideration transferred at the acquisition-date fair value of cash and equity issued. Include contingent consideration at fair value and document the payoff structure and its assumptions. Add any noncontrolling interest and previously held interest at fair value (or the noncontrolling interest at proportionate share under IFRS 3.19). Complete the fair value measurement of each consideration element before finalizing the residual.
Official guidance: FASB Accounting Standards Codification
Which best describes the identifiable intangible assets recognized apart from goodwill?
Test each candidate intangible against the two identifiability criteria: it is recognized separately if it arises from contractual or legal rights, or if it is separable. The classic trap is defaulting everything into goodwill; an assembled workforce is correctly subsumed into goodwill, but customer relationships and technology usually are not.
Recognize and measure each contractual-legal intangible at fair value under IVS 210. Recognize and measure each separable intangible at fair value under IVS 210. Subsume the assembled workforce into goodwill and confirm no other intangibles exist. Revisit intangible identification before measuring the residual, because unidentified intangibles overstate goodwill.
Official guidance: FASB Accounting Standards Codification
After measuring all identifiable assets acquired and liabilities assumed at fair value, does the consideration (plus any noncontrolling interest and previously held interest) exceed the net identifiable fair value?
Goodwill is a residual, not a directly measured amount, so its reliability depends on complete identification and fair value measurement of everything else, including deferred taxes on the acquired bases. A negative residual is a signal to reassess the inputs before recognizing a bargain purchase gain, which is rare and closely scrutinized.
Reassess whether all assets and liabilities were identified and measured correctly, then recognize any remaining excess as a bargain purchase gain in earnings under ASC 805-30-25-2 (IFRS 3.34).
Official guidance: FASB Accounting Standards Codification
Does the internal rate of return implied by the price and the prospective financial information reconcile with the weighted average cost of capital and the weighted average return on assets?
The internal rate of return implied by the negotiated price should approximate the weighted average cost of capital when the prospective financial information reflects market-participant assumptions, and the return on assets weighted across the acquired assets should tie back to that cost of capital. A material gap points to aggressive cash flows, mismatched risk premiums, or missing intangibles.
Revisit the prospective financial information, the discount rate assigned to each identifiable asset, and the completeness of the intangibles before concluding, so that the internal rate of return, cost of capital, and return on assets reconcile under IVS 210.
Official guidance: FASB Accounting Standards Codification
Are the acquisition-date fair values final, or are some amounts still provisional within the one-year measurement period?
The measurement period allows up to one year to finalize provisional amounts using information about facts that existed at the acquisition date, with corresponding adjustments to goodwill. The trap is treating post-acquisition events or changed estimates as measurement-period adjustments; only new information about acquisition-date conditions qualifies.
Recognize goodwill as the final residual and complete the required business combination disclosures. Recognize goodwill using provisional amounts and adjust retrospectively as measurement-period information about acquisition-date conditions is obtained, within one year, under ASC 805-10-25-13.
Official guidance: FASB Accounting Standards Codification
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