Valuation of assets in business purchase and sale operations

The International Accounting Standards (IAS) and the Spanish General Accounting Plan determine that all business combination processes (purchase-sale, merger or spin-off) are accounted for using the acquisition method.

The acquisition method assumes that the acquiring company will account for, on the acquisition date, the assets acquired and the liabilities assumed in a business combination, as well as, where applicable, the difference between the value of said assets and liabilities and the cost of the business combination will be recognized as goodwill.

Consequently, the application of the acquisition method requires to:

1. Identify the acquiring company.
2. Determine the acquisition date.
3. Quantify the cost of the business combination.
4. Value the identifiable assets acquired and the liabilities assumed.
5. Determine the amount of goodwill or negative difference.

The “Price Paid Allocation” process in a business combination is called “Purchase Price Allocation” (PPA) and consists of the following steps:

Step 1: Transaction Analysis

• Determine the total cost of the transaction.
• Determine the date of the business combination.
• Allocation of expenses related to the acquisition.

Step 2: Identification and Valuation of Assets and Liabilities

• Identification of acquired assets and liabilities.
• Determining the fair value of tangible and intangible assets.
• Estimating the useful lives of identified assets.

Step 3: Determining Goodwill

• Calculation of goodwill or negative difference.
• Planning future impairment analyses.

INTERVALOR DATA is a firm specialized in the valuation of all types of tangible and intangible assets as well as going concerns, with extensive experience in valuations for the “Price Paid Allocation” (PPA) in business combinations.