Equipment Appraisal Blog | Understanding Machinery Appraisals

Equipment Appraisals and the Allocation of Assets

Posted by Equipment Appraisal Services on Mon, Aug 03, 2015 @ 08:30 AM


When a business or manufacturer purchases another entity, Equipment Appraisal Services is often called in as equipment appraisers to provide an allocation of assets. Since a purchase price is often based on a number of factors such as real estate, buildings and equipment, inventory, goodwill, licenses and patents, and anticipated future income, it can sometimes be difficult to set values for each of these assets. Once the entities are combined, there is usually a further co-mingling of assets which makes it even more difficult to specify individual machinery valuations.

Depending on the purpose of the allocation, it may be based on “fair value” under various existing accounting standards or “fair market value” under the parameters of the U.S. Internal Revenue Code. In the immediate aftermath of the acquisition, an allocation of assets is used to set up accounting records and depreciation schedules. Fair value is the assets value at the measurement date.

When an allocation of assets is used as the basis for federal income tax reporting purposes, “fair market value” is used. This is the estimated amount that may be reasonably expected for a property in an open market exchange between a willing seller and buyer.

Both the buyer and seller of a business will need to report to the IRS how much the business was sold or bought for and the make-up of the price.  Since both parties are reporting the numbers, there needs to be consistency.

Beyond the allocation of purchase price, there are other examples where equipment appraisals might be required.  These include:

  • Insurance Claims: In the event of an accident or natural disaster, it may be necessary to set an equipment value on some of the assets of a business. If, for example, a fire damaged half of a manufacturing plant, the insurance company would want to know the value of the affected machinery.
  • Divorce Litigation: Divorces can get messy when the partners are also business partners. Each may be entitled to a share of the business. In addition, a divorce settlement may entitle a non-business partner to a certain percentage. In either case, it may be necessary to conduct a machinery and equipment appraisal in order to ensure an equitable distribution of assets.
  • Loan Financing: It is often necessary to put up asset collateral as a guarantee when borrowing money from banks or the Small Business Administration. If your business needs to borrow $1 million to purchase new equipment, our machine appraiser will help find the combination of existing equipment that will satisfy the lender’s requirements.
  • Donations: In some cases, you may decide that a piece of equipment has served its purpose for your business, but that it could still provide a valuable service if donated to a charitable organization. In this case, a donation appraisal will help to determine an accurate value for the machine so that it can be removed from your depreciation schedules and recognized as a charitable donation for tax purposes.

Equipment Appraisal Services is a nationwide provider of certified machinery and equipment appraisals for insurance recovery claims, divorce and partnership dissolutions, gifting and donation justifications, litigation, bank financing collateral, allocation of assets, property tax appeals, mergers and acquisitions, estate settlements, financial reporting, and risk management.

Tags: equipment appraisals, allocation of assets