Bargain purchases in business acquisitions

2. Examples of bargain purchases

Letís take a look at a quick example of how a bargain purchase may look like.† Buyer A is acquiring assets (which constitute a business) of Seller B for 50,000.† Seller B is in bankruptcy and is selling off parts of its business.† The following assets and liabilities were identified in this business acquisition (amounts shown represent fair values which are typically determined by valuation specialists):

Assets:

 

†† Accounts receivable

$100,000

†† Prepaid assets

$15,000

†† Fixed assets

$250,000

†† Intangible assets

$150,000

Total assets

$515,000

   

Liabilities:

 

†† Accounts payable

$100,000

†† Accrued salaries and wages

$75,000

†† Accrued expenses

$50,000

†† Long-term debt

$200,000

Total liabilities

$425,000

   

Net assets

$90,000

The purchase price is $50,000 and the net assets being acquired equal $90,000 resulting in a bargain purchase gain of $40,000.

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