ASC 805 purchase price allocation: the book side of a business purchase

Published October 25, 2026 · Rules checked against SBA and IRS sources as of October 2026

If you buy a business and your company keeps GAAP books, you end up doing the purchase price allocation twice: once for the IRS under Section 1060, and once for your financial statements under ASC 805, Business Combinations. People expect the two to match. They usually don't, and that's fine as long as you know why. This page covers what ASC 805 asks for, where it parts ways with the tax rules, and the shortcuts private companies can elect. It is a plain-English overview, not accounting advice; your CPA signs off on the accounting.

Who actually needs it

ASC 805 applies to entities reporting under US GAAP. A lot of small acquirers don't: they keep tax-basis books, and their lender accepts tax returns and internally prepared statements. In that world the tax allocation is the only one that matters. ASC 805 becomes your problem when:

• your loan agreement, investors or a surety require reviewed or audited GAAP financial statements;
• you're a private equity-backed or larger company buying a smaller one;
• you plan to sell or raise money and want statements a buyer's diligence team will accept.

If none of those apply, read the tax side of purchase price allocation instead and skip the rest.

The ASC 805 steps

1. Confirm it's a business combination. If substantially all of the fair value of what you bought is concentrated in a single identifiable asset or a group of similar assets, it's an asset acquisition, not a business combination, and the cost is spread over the assets with no goodwill. Buying a whole operating company almost always passes as a business.
2. Identify the acquirer and the acquisition date. Usually obvious in a small deal: you, on the closing date.
3. Measure the consideration. Cash, notes, equity issued and the fair value of any contingent consideration, all at the acquisition date.
4. Recognize and measure identifiable assets and liabilities. Generally at fair value, including intangibles that the seller never had on its balance sheet, such as customer relationships and trade names.
5. Compute goodwill or a bargain purchase gain. Goodwill is the excess of consideration over the net identifiable assets. If net assets exceed consideration, you re-check the work and, if it holds, recognize a gain.
6. Finalize within the measurement period. Provisional amounts can be adjusted for new information about facts that existed at the acquisition date, for up to one year.

Where book and tax part ways

The last row surprises people. In a stock purchase, the tax basis of the company's assets doesn't change, but the GAAP books are still stepped to fair value. That gap between book and tax basis is exactly what deferred tax accounting picks up. More on stock deals in allocation of purchase price in a stock sale.

The private company shortcuts

Private companies (not public companies) have two accounting alternatives that make small-deal ASC 805 work much lighter:

• Goodwill amortization (ASU 2014-02). Goodwill can be amortized on a straight-line basis over a useful life of 10 years or less, with a simpler impairment model, instead of the annual impairment test public companies face.
• Fewer intangibles (ASU 2014-18). The buyer can elect not to recognize separately customer-related intangibles that aren't capable of being sold or licensed independently of the business, and non-compete agreements. Those amounts fold into goodwill. A company that elects this must also elect goodwill amortization.

For a typical owner-operated acquisition, electing both means the book allocation might come down to working capital, fixed assets, perhaps a trade name, and goodwill. The tax allocation still needs the non-compete and customer intangibles valued separately, because Section 1060 has no such shortcut. Talk to your CPA before your first acquisition: the election is an accounting policy choice with consequences for later deals.

A worked comparison

Illustration, not a real deal

Say your company, which issues reviewed GAAP statements, buys the assets of a plumbing contractor for $2,000,000 cash. You pay $60,000 of legal and diligence fees. Fair values: inventory $80,000, vans and tools $320,000, customer relationships $300,000 (not separately sellable), a non-compete $50,000, and a trade name $70,000. You've elected both private company alternatives.

The tax side treats the general fees as part of total consideration, which in this example lands in goodwill; the regulations only assign costs to a specific asset when they are specific to transferring it. On the book side, tax goodwill plus the customer and non-compete intangibles total $1,590,000, amortized over 15 years for tax, while book goodwill of $1,530,000 is amortized over 10 years or less. Your CPA will track the difference in deferred taxes.

Valuation work ASC 805 needs

The fair values in an ASC 805 allocation are measured under the fair value framework (ASC 820): the price to sell an asset in an orderly transaction between market participants. For small deals the main valuation tasks are:

• Inventory at fair value, which for finished goods is usually above the seller's cost; see inventory in a purchase price allocation.
• Equipment and vehicles, usually from an appraisal.
• Customer relationships and trade names, unless the private company election removes customer relationships; methods are covered in PPA intangible assets.
• Deferred revenue and customer deposits assumed, measured as liabilities.
• Any contingent consideration, at fair value.

How this fits an SBA-financed purchase

The SBA valuation that supports an acquisition loan is a third exercise. It values the business as a whole to support the purchase price; it isn't an ASC 805 allocation and it isn't a Form 8594 allocation. Using one engagement to produce consistent numbers for all three saves time, but each has a different user: the lender for the SBA valuation, your tax return for Section 1060, your financial statements for ASC 805. One useful side effect of SBA rules: seller earnouts are prohibited on SBA change-of-ownership loans, so the contingent consideration problem that complicates many ASC 805 allocations usually doesn't arise. See SBA valuation requirements for the lender's side.

Checked against current FASB private company alternatives and IRS guidance as of October 2026. Accounting standards change; confirm the current codification with your CPA.

Common questions

Related guides

• Purchase price allocation: how to split a business price across assets
• PPA intangible assets: what to identify, and how each is valued
• Section 1060 purchase price allocation: what the statute and regulations require
• Allocation of purchase price to goodwill: how much, and why it isn't a free choice
• Merger and acquisition valuation: price vs value, and who pays for synergies

This guide explains rules and practice in plain English. It isn't legal, tax or credit advice, and SBA and IRS rules change. Check the current SOP, regulations and your lender's requirements before you rely on anything here. Examples with made-up businesses are illustrations, not real deals.