In acquisition accounting, identifiable intangible assets are the non-physical assets — customer relationships, brands, technology, contracts — that an acquirer must recognize separately from goodwill when it allocates the purchase price under ASC 805 / IFRS 3. A target's most valuable assets are often intangible and frequently unrecorded on its own balance sheet (a self-built brand or customer base); the purchase price allocation (PPA) is where they are identified, valued and booked.
The recognition criterion
An intangible is recognized separately from goodwill if it is identifiable — meaning it meets either of two tests:
- Separability — it could be sold, licensed or transferred on its own (a brand, a customer list, software); or
- Contractual-legal — it arises from contractual or legal rights (a patent, a franchise, a lease, a license), even if not separable.
Anything that fails both tests stays bundled in goodwill (e.g., assembled workforce, general "going-concern" value).
Common categories
Acquired intangibles are usually grouped into five families:
- Marketing-related — trademarks, trade names, brands, domain names.
- Customer-related — customer relationships, customer lists, order backlog.
- Contract-based — favorable leases, licensing, franchise, supply agreements.
- Technology-based — patents, developed software, trade secrets, databases.
- Artistic-related — copyrights on media, literary or musical works.
How they are valued
Because most acquired intangibles have no market price, they are valued with income-based models in the PPA:
- Relief-from-royalty — common for brands/technology: the value is the present value of royalties the company avoids paying by owning the asset.
- Multi-period excess earnings (MPEEM) — common for customer relationships: isolate the cash flows attributable to the asset after charging for the other assets that help generate them.
- Cost / replacement — for assets like an assembled workforce or software where reproduction cost is the best proxy.
The earnings impact
Identifiable intangibles (other than indefinite-lived ones like some brands) are amortized over their useful lives, creating a non-cash expense that reduces reported earnings for years after the deal. This is why the split between intangibles and goodwill matters: goodwill is not amortized (only impairment-tested), so allocating more value to amortizing intangibles lowers future GAAP earnings relative to allocating it to goodwill. (It also feeds deferred tax accounting, since book and tax treatment of these intangibles often differ.) Acquirers, their accountants and valuation specialists therefore pay close attention to the PPA's allocation between the two.
See also
- Purchase price allocation — The process of assigning an acquisition’s price to the assets and liabilities acquired.
- Goodwill — The intangible asset recorded when a buyer pays more than the fair value of net assets.
- ASC 805 — Business Combinations — The U.S. GAAP standard governing accounting for business combinations. Largely converged with IFRS 3 since 2008.
- IFRS 3 — Business Combinations — The IFRS standard governing the accounting treatment of business combinations, including the acquisition method, goodwill recognition and post-acquisition reporting.
- Goodwill impairment — A write-down of goodwill when its carrying amount exceeds its recoverable amount. Tested at least annually under both IFRS and U.S. GAAP.
- Deferred tax in M&A — The deferred tax assets and liabilities recognised on differences between book and tax basis of assets and liabilities acquired in a business combination.