When one company acquires another, the acquirer must allocate the purchase price to balance sheet items. This can require the company to recognize asset and liabilities that previously did not exist. It effectively results in a revaluation of the target balance sheet.
IFRS accounting standards, US GAAP and various local GAAPs require allocation of purchase price to acquired net assets after an acquisition. In short, the acquirer recognizes new assets and liabilities on the target’s balance sheet that did not previously exist, measures these new assets and liabilities at fair value, re-measures pre-existing assets and liabilities at fair value, and calculates the remainder as goodwill.
The auditors of the acquirer, target and (sometimes) the acquirer’s shareholders are often restricted from performing a purchase price allocation because of independence conflicts. It can be helpful to work with an independent valuation advisor. AppraisAll has the required experience in a wide range of industries and is fully independent.
Beyond this there may be able situation where you need an independant eye to have a look at your fixed assets and how they are treated for financial reporting purposes. One example is an Economic Useful Life Analysis:
Definite life long-term assets are depreciated over their economic useful life. This is normally based on a prudent estimate of economic life at asset purchase date and can be influenced by applicable regulatory requirements. Depreciation periods can change during the life of an asset, possibly resulting in an impairment or hidden reserves. An Economic Useful Life Analysis can be helpful when there is an indication that the depreciation period might have changed or in order to demostrate significant hidden reserves on the balance sheet.
All three forms of obsolescence (functional, technical and economical) need to be considered in a systematic and hermetic way for a supportable and defendable position. The analysis includes, but is not limited to, an analysis of technical standards and operational records, accounting literature and standards, interviews with experts for the design and operation, analysis of the economic environment and future projections. Our approach includes an analysis of the expected effects implied by the economic useful life analysis on your accounting system.