Purchase Price Allocation (PPA) Process to Value Assets in an Acquisition

Recently we had a client reach out to us for help with a revaluation of their fixed assets. They were acquired by another company and needed to go through a Purchase Price Allocation (PPA) process. This meant that they had to establish a second database to reset all depreciation and book values while retaining the original database for historical reporting.

The Purchase Price Allocation process starts with current balance sheet value. The company being acquired then typically hires an appraisal company to determine fair market value based on an appraisal of assets and liabilities. The excess amount of the purchase price over fair market value is considered goodwill acquired through the transaction. Here is a sample chart:

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In order to accomplish this, we worked with their IT department to establish a second instance of our software and a brand new database. At that point a backup of the original data could be applied to the new database. The original is then left alone for historical reporting and the new one can be updated with new dates and book value to reflect the revaluation.

Questions? Comments? Let us know in the comments section below.

More information about Bassets eDepreciation software can be found at Bassets.net or depre123.com. At Bassets register for our live webinar, download a free evaluation copy and get a personalized pricing estimate. At depre123 try out our Free Depreciation Calculator and check out our cloud based fixed assets application.

Nonresidential Building Improvements Post 1993 Depreciation Calculation

IRS Publication 946 explains how you can use depreciation to recover the cost of business or income-producing property. One of the key elements in determining the correct annual depreciation amount is selecting the appropriate property class. There are many property classes listed in Appendix B of this publication but we have also created additional classes for things that are not covered. Nonresidential Building Improvements is one of asset classes.

After May 12, 1993, nonresidential building improvements were depreciated under the straight-line method and the mid-month convention with a recovery period of 39 years.

Additionally, the Section 179 Expense Deduction was not allowed.

Additions or improvements made to property, including improvements by a lessee or lessor to leased property, are treated as separate items (assets) for MACRS depreciation. In general, depreciation on the addition or improvement is computed on the property added to or improved if such property had been placed in service at the same time as the addition or improvement.

Nonresidential Building Improvements Post 93.1

This gives you the basic information that you need for a depreciation calculation but you still need to use a formula to get your answers. A straight-line calculation is used for this asset class and the mid-month convention will take half the monthly depreciation in the first period.

Look at sample spreadsheet below to see all the work that is involved in just one calculation. The highlighted formula shows the first year formula of a straight line calculation that was acquired in the middle of the year. As noted the first year calculation is dependent on the month placed in service. This calculation will continue for 40 years, click the spreadsheet image to see the full calculation results.

Nonresidential Building Improvements Post 93.2

Let the Depre123 depreciation calculator take out the guess work. Just enter 3 simple values (Cost, Date, Class) and get all the answers. The calculator is a great way to view the depreciation results for a handful of assets. If you manage hundreds or thousands of fixed asset records then a trial of the full Depre123 application can demonstrate how to simplify the entire process of fixed asset management.

Questions? Comments? Let us know in the comments section below.

More information about Bassets eDepreciation software can be found at Bassets.net or depre123.com. At Bassets register for our live webinar, download a free evaluation copy and get a personalized pricing estimate. At depre123 try out our Free Depreciation Calculator and check out our cloud based fixed assets application.

Land (Non-depreciable) Depreciation Calculation

IRS Publication 946 explains how you can use depreciation to recover the cost of business or income-producing property. One of the key elements in determining the correct annual depreciation amount is selecting the appropriate property class. There are many property classes listed in Appendix B of this publication but we have also created additional classes for things that are not covered. Land is one of the asset classes.

Land Non-depreciable

You cannot depreciate the cost of land because land does not wear out, become obsolete, or get used up. The cost of land generally includes the cost of clearing, grading, planting, and landscaping.

Although you cannot depreciate land, you can depreciate certain land preparation costs, such as landscaping costs, incurred in preparing land for business use. These costs must be so closely associated with other depreciable property that you can determine a life for them along with the life of the associated property.

Example: You construct a new building for use in your business and paid for grading, clearing, seeding, and planting of bushes and trees. Some of the bushes and trees were planted right next to the building, while others were planted around the outer border of the lot. If you replace the building, you would have to destroy the bushes and trees right next to it. These bushes and trees are closely associated with the building, so they have a determinable useful life. Therefore, you can depreciate them. Add your other land preparation costs to the basis of your land because they have no determinable life and cannot be depreciated.

Let the Depre123 depreciation calculator take out the guess work. Just enter 3 simple values (Cost, Date, Class) and get all the answers. The calculator is a great way to view the depreciation results for a handful of assets. If you manage hundreds or thousands of fixed asset records then a trial of the full Depre123 application can demonstrate how to simplify the entire process of fixed asset management.

Questions? Comments? Let us know in the comments section below.

More information about Bassets eDepreciation software can be found at Bassets.net or depre123.com. At Bassets register for our live webinar, download a free evaluation copy and get a personalized pricing estimate. At depre123 try out our Free Depreciation Calculator and check out our cloud based fixed assets application.

Qualified Leasehold Improvement Property Depreciation Calculation

IRS Publication 946 explains how you can use depreciation to recover the cost of business or income-producing property. One of the key elements in determining the correct annual depreciation amount is selecting the appropriate property class. There are many property classes listed in Appendix B of this publication but they have also created additional classes for things that are not covered. Qualified Leasehold is one of the asset classes.

Qualified Leasehold Improvement Property placed in service after October 22, 2004 and before January 1, 2014 is 15 year MACRS property. This provision is not elective and must meet the Bonus depreciation requirements:

  1. The improvement is made under or pursuant to a lease;
  2. The lease is not between related persons;
  3. The improved space is occupied exclusively by the lessee;
  4. The improvement is section 1250 property; and
  5. The improvement is placed in service more than three years after the date the building was first placed into service

Qualified Leasehold Improvement 1

This gives you the basic information that you need for a depreciation calculation but you still need to use a formula to get your answers. A straight-line calculation is used for this asset class and the half year convention will take a half of a yearly depreciation in the first year.

Look at sample spreadsheet below to see all the work that is involved in just one calculation. After the first year, each year is calculated at one fifteenth of the cost until the last year. The highlighted formula shows the remaining amount of the first year is then taken in the last or stub year.

Qualified Leasehold Improvement 2

Let the Depre123 depreciation calculator take out the guess work. Just enter 3 simple values (Cost, Date, Class) and get all the answers. The calculator is a great way to view the depreciation results for a handful of assets. If you manage hundreds or thousands of fixed asset records then a trial of the full Depre123 application can demonstrate how to simplify the entire process of fixed asset management.

Questions? Comments? Let us know in the comments section below.

More information about Bassets eDepreciation software can be found at Bassets.net or depre123.com. At Bassets register for our live webinar, download a free evaluation copy and get a personalized pricing estimate. At depre123 try out our Free Depreciation Calculator and check out our cloud based fixed assets application.

Computer Software Depreciation Calculation

IRS Publication 946 explains how you can use depreciation to recover the cost of business or income-producing property. One of the key elements in determining the correct annual depreciation amount is selecting the appropriate property class. There are many property classes listed in Appendix B of this publication but we have also created additional classes for things that are not covered. Computer Software is one of the asset classes.

Computer software is defined broadly to include any program designed to cause a computer to perform a desired function. However, a database or similar item is not considered computer software unless it is in the public domain and is incidental to the operation of otherwise qualifying computer software.

Depreciable software acquired after 8/10/1993 that is not an amortizable section 197 intangible asset is depreciated using straight-line over a three year period beginning on the first day of the month. This software can also be expensed under section 179.

Software is considered a section 197 intangible only if acquired in a transaction involving the acquisition of assets constituting a trade or business. Off-the-shelf software is not a section 197 intangible asset. Below are the associated class lives and recovery periods:

Computer Software Depreciation 1

This gives you the basic information that you need for a depreciation calculation but you still need to use a formula to get your answers. A straight-line calculation is used for this asset class and the full month convention will take a full month of depreciation in the first period.

Look at sample spreadsheet below to see all the work that is involved in just one calculation. The highlighted formula shows the first year calculation as one twelfth of the annual amount meaning the asset started depreciating in the last period of your year. As you can see the remaining amount of the first year is then taken in the last or stub year.

Computer Software Depreciation 2

Let the Depre123 depreciation calculator take out the guess work. Just enter 3 simple values (Cost, Date, Class) and get all the answers. The calculator is a great way to view the depreciation results for a handful of assets. If you manage hundreds or thousands of fixed asset records then a trial of the full Depre123 application can demonstrate how to simplify the entire process of fixed asset management.

Questions? Comments? Let us know in the comments section below.

More information about Bassets eDepreciation software can be found at Bassets.net or depre123.com. At Bassets register for our live webinar, download a free evaluation copy and get a personalized pricing estimate. At depre123 try out our Free Depreciation Calculator and check out our cloud based fixed assets application.