BCA BCA Business Asset Identification & Classification 2 — Questions and Answers
Question 1: Under purchase price allocation (PPA) for a US business acquisition, which standard guides the identification and classification of acquired intangible assets?
- GAAP ASC 805 (Business Combinations) (Correct answer)
- USPAP Standard 9
- IRS Revenue Ruling 59-60
- AICPA SAS 99
Correct answer: GAAP ASC 805 (Business Combinations)
ASC 805 requires acquirers to identify and measure all acquired assets and liabilities, including intangible assets, at fair value as of the acquisition date.
Question 2: A BCA appraiser identifies a 'non-compete agreement' as part of a business sale. How is this typically classified?
- Tangible personal property
- Real property
- Contractual intangible asset (Correct answer)
- Operating liability
Correct answer: Contractual intangible asset
Non-compete agreements are contractual intangible assets because their value derives from a legally binding contract restricting competitive activity.
Question 3: What distinguishes an 'identifiable intangible asset' from goodwill in BCA practice?
- Identifiable intangibles have no legal protection
- Identifiable intangibles can be separated from the business or arise from contractual rights (Correct answer)
- Goodwill is always greater in value
- Identifiable intangibles are excluded from the balance sheet
Correct answer: Identifiable intangibles can be separated from the business or arise from contractual rights
Identifiable intangibles meet the separability or contractual-legal criterion under GAAP and can be valued individually, unlike goodwill which is the residual value.
Question 4: When performing a BCA engagement for a professional services firm, why is separating personal goodwill from enterprise goodwill especially important?
- Personal goodwill increases the tax basis of the business
- Personal goodwill may not transfer with the business, affecting marketable value and deal structure (Correct answer)
- Enterprise goodwill is excluded from income-based valuations
- The separation is required by IRS Form 8594 only
Correct answer: Personal goodwill may not transfer with the business, affecting marketable value and deal structure
In professional services firms, much of the goodwill may be tied to a specific individual and would leave with them, reducing the enterprise's transferable value.
Question 5: Which of the following is an example of a 'customer-related intangible asset' in BCA?
- Patent portfolio
- Customer lists and backlog (Correct answer)
- Trade name
- Assembled workforce
Correct answer: Customer lists and backlog
Customer lists, relationships, and order backlog are customer-related intangibles that represent the economic value of existing customer connections.
Question 6: A BCA appraiser is valuing a technology company and identifies capitalized software. How is internally developed software typically classified for appraisal purposes?
- Real property
- Tangible personal property
- Intangible asset (technology-based) (Correct answer)
- Current asset only
Correct answer: Intangible asset (technology-based)
Internally developed software is a technology-based intangible asset, valued using cost or income approaches depending on its stage and commercial use.
BCA BCA Business Asset Identification & Classification 2
Under purchase price allocation (PPA) for a US business acquisition, which standard guides the identification and classification of acquired intangible assets?