Mergers & Acquisitions | Updating Fixed Assets, Correctly

Regardless if your assets were purchased through Stock or Asset acquisition, the costs for the internal/GAAP assets will change.  However, if your M&A was a stock purchase, all of your Federal Tax, State, and AMT values need to remain as they are and continue forward with their original values, methods, lives and placed in service dates.  Whereas an asset purchase, they all change.

When I review clients data after an acquisition, I often notice ‘value adjustments’ or ‘topside’ entries to record the new values (and lives) after their purchase price valuations.  These are easy to spot on sub-ledgers, but not easy to manage on a go forward basis.

Common problems with adjustment entries

  1. Reconciling issues across depreciation books
    • If you are outsourcing your Tax depreciation, this can turn into a nightmare
  2. Reconciling problems down to the individual asset level
  3. Essentially, this creates multiple ‘assets’
  4. Disposal tracking and ensuring that all assets get disposed properly
    • Even a partial disposal will be problematic to the ‘adjusted’ entry
  5. Transferring assets across companies
  6. Asset adjustments/impairments – you have a bulked entry, how do you go about making the correct adjustment?
  7. Physical inventory reconciliation
  8. Property tax schedules
  9. Insurance claims
  10. Cost Segregation Studies

As you can see, it is extremely important to take the time to reconcile down to the asset level whenever possible.  If you don’t receive your FMV study or NBV down to the asset level, but instead, by asset Class/Type, GL Asset Number or any other combination, at least take the time to allocate the values.  Besides, the cost is not the only thing that changes.  Your assets get a new placed-in-service date and a new life (either remaining or start over).  It may be a big task, but you will love that you did it later.

In addition, if you have multiple companies getting revalued, take the time now to either implement a software that will take care of both GAAP and TAX depreciation and/or revisit how you are tracking and recording your assets.  Now would also be the perfect time to look at data fields, reporting and workflow consistencies   Ensure everyone is on the same page going forward.  This will create a successful fixed asset management process.

Last but not least… remember to update your calendars to correctly calculate your new short year!

Precision Castparts hired Fixed Asset Consulting (FAC) when we were acquired by Berkshire Hathaway.  FAC developed a process to take the newly revalued assets and import the data into Sage FAS, while preserving the tax values and importing the old book information into over 120 companies.  Along with this massive conversion, FAC helped us identify best practices and implement them across all entities.  This has brought us some much-needed consistencies for Internal Audit and SOX purposes.  The project was a huge success thanks to the innovative ideas and hard work of the FAC staff.

Doug KludtTax Director at Precision Castparts Corp