A previous article listed the purposes for which a valuation may be requested during the preparation of companies' financial statements. One of these purposes is to substantiate the allocation of the purchase price of a real estate property or a business.

Most of the time, when a commercial company buys a real estate property, the total price of the property is specified in the sales contract. The price is generated by the contribution of the components of the property, the most important being the land and the buildings, but sometimes movable assets detachable from the real estate component may also be involved, as well as intangible elements, such as, for example, a building permit issued for the extension of the existing building, the rights and obligations related to that permit being transferred to the acquiring company.

Each component of real estate must be assigned a fair value to be recorded in the related accounting accounts – land, buildings, equipment, furniture or intangible assets. Thus, in addition to complying with accounting regulations, allocating the purchase price of a real estate property to its components is beneficial for the business owner because the real value of the land, respectively the buildings, will be recorded, and the company's profit will not be tainted by an oversized depreciation.

The price allocation process becomes more complex when we are talking about the acquisition of an entire company by another following an M&A process. If in the case of real estate the allocation is made on a few well-defined components, the price of a company is influenced by many more factors that should be highlighted separately in the accounting records, most of the time the intangible elements being very valuable.

The allocation process involves, in this case, estimating the fair value for the intangible, tangible and financial assets that were transferred from the acquired company, as well as for any liabilities associated with those assets. While tangible and financial assets are identified and valued individually, their fair value being then recorded in the accounting accounts related to each category, not all intangible assets transferred can be analyzed and recorded separately.

For an intangible asset transferred in a business combination to be recognized in the accounting of the acquiring company, it must meet one of the following two conditions: it must be separable, meaning it can be separated or detached from the entity and sold, or it must arise from contractual or other legal rights.

From the category of separable or arising from contractual rights, we can mention trademarks, brands, customer lists, license and royalty agreements, authorizations, broadcasting rights, non-compete agreements, rights over natural resources, databases, computer programs.

Intangible assets, such as trained labor, are typically recorded as goodwill, which is the difference between the purchase price paid for the transfer of the business and the fair value of the identifiable net assets acquired.

Allocation of the purchase price by components is a complex task, sometimes more difficult than the actual valuation of a company. This process can be carried out by an authorized appraiser specialized in the valuation of real estate, movable property and businesses, who, in addition to experience and competence in the field of valuation of various types of assets, must also have financial and accounting knowledge, in order to understand the mechanism and logic of recording fair values ​​in the company's accounting records.