Asset acquition

[Reshma kochar]

We are considering to acquire fixed assets of a company. We are paying more than its book  values(Fixed assets). My doubt is that we cannot recognize goodwill as its not a amalgamation or merger. Moreover we are paying a one time transfer fee also for its say employees or whatever. We want to capitalise the amount in form of a intengible ( not goodwill) .What it could be?

[ajay singh]

As per AS -10, Accounting for fixed assets:

Cost components:-

The cost of an item of fixed asset comprises its purchase price, including import duties and other non-refundable taxes or levies and any directly attributable cost of bringing the asset to its working condition for its intended use; any trade discounts and rebates are deducted in arriving at the purchase price. Examples of directly attributable costs are:

     (i) site preparation; 

     (ii) initial delivery and handling costs; 

     (iii) installation cost, such as special foundations for plant; and 

     (iv) professional fees, for example fees of architects and engineers. 

The cost of a fixed asset may undergo changes subsequent to its acquisition or construction on account of exchange fluctuations, price adjustments, changes in duties or similar factors.

But your case is not in the nature of amalgamation so you can not treat the difference between book value and purchase price as intangible assets.

[Reshma kochar]

Thanks Sir,

Than how we will account for this??

[ajay singh]

Just capitalise the amount whatever you pay for the acquisition of assets. As there is no any intangible assets in which you account the difference amount.

Simp-ly the cost of any assets is determined by the amount you pay for assets.

 

[Reshma kochar]

Hi,

But that will not be justfyable (in transfer pricing senario).

[ajay singh]

Dear Mam,

Just clarify me your issue whether it for transfer pricing or accounting issue.

[Reshma kochar]

Dear Sir,

Sorry.. i couldn't explain it correctly..... thing is that, we, under a BOT agreement, considering to purchase the assets of company. we are paying a lump sum amount more than its asset value.. want to know how we can defer the rest part of arrangement in form of intangibles..( like business contracts, or human resources value ) and how we can justify the classification of consideration...

[ajay singh]

Make the agreement available to me so that i can give you the answer.

[DEV KUMAR KOTHARI]

Reply is arranged in form of catch words from query and then reply

 We are paying more than its book  values(Fixed assets)-       the negotiated price is cost in your hands.book value has no relation in case of sale. The CMP can be more or less than book value.

Moreover we are paying a one time transfer fee - This can be for intangilbel assets acquired form the vendor - these intangible assets and their value should be specified in agreement..

We, under a BOT agreement,- in such situation intangible assets in form of technical know -how, technical and commercial data base, trade names and  brands and their copy rights, various licences, permissions,   grants, tenacies ,supply chain, customers base , financial arrangements, etc. can be intangible assets.

The value of intangible assets should preferably be negotiated and form part of agreement, or exervcise of deriving total consideration paid.

The intangible assets should be acquired and used for busienss, and some evidence for the same should be kept.

AI Summary

Accounting treatment for premium on asset acquisition: premium is capitalised unless intangibles are expressly identified and valued.
When acquisition consideration exceeds book value, the negotiated purchase price, including any premium, constitutes the cost of the fixed assets under AS 10; amounts can only be treated as separately recognised intangibles if the agreement specifically identifies and allocates value to intangible assets (such as know how, databases, trade names, licences, customer relationships or transfer fees), those intangibles are used in the buyer's business, and adequate documentation and negotiated valuation support the classification for accounting and transfer pricing purposes.