How Do The Parties Allocate The Purchase Price Of A Business To Various Assets?

The CPA of the buyer & seller are usually involved with the allocation of the assets to the purchase price. When a business is acquired, the business being purchased can include various assets including machinery, inventory, fixtures and intangible assets. The breakdown of these assets is important because certain assets can be depreciated or written off faster than others. Often one allocation will tend to favor the seller or the buyer.

In many instances, especially with the intangible assets, this allocation is somewhat negotiable, and is sometimes used as a bargaining tool. The IRS will verify that the seller and buyer have done an identical allocation, so the parties must agree upon it. You should work with your CPA to be sure you understand the tax implications of the final allocation.