Which assets does the buyer actually acquire?
Begin with the signed scope of the transaction. List purchased trucks, trailers, drain machines, jetters, cameras, shop tools, stock, and other assets. Identify excluded items and assets held by another owner. A model that labels one line “equipment and inventory” is too broad to reconcile on its own.
Use the valuation hub to connect this work to price and financing. Allocation starts with what is transferred and how the transaction is treated. It cannot fix a purchase schedule that still disagrees with the assets the buyer expects to use.
A allocation register connects each purchased asset or defined asset group to ownership evidence, quantity, condition, proposed value, tax class, and the final schedule. It is a reconciliation tool. The CPA still needs to determine applicable treatment from the actual deal.
What does the depreciation schedule contribute?
Request the current fixed-asset and depreciation records, with relevant invoices and disposal entries. Compare serial numbers, acquisition dates, and descriptions to the physical register. An old truck may remain on the schedule after disposal, while a machine recorded as an expense may still be in use.
Book cost, tax basis, and supported current value are different fields. Preserve them separately. Ask the seller to explain gaps rather than filling them with an assumed price. The schedule should reveal questions for the CPA and asset reviewer, not dictate every agreed allocation.
The quality-of-earnings guide helps distinguish asset spending from reported earnings. A depreciation expense or proposed add-back does not establish the fair market value of a purchased item. Keep earnings recast and asset allocation aligned without treating them as the same calculation.
How do identifiers and condition affect the register?
For major items, match the physical identifier to the purchase list and supporting record. Record attachments, accessories, and location where relevant. A jetter with missing hoses or an unusable camera system may not match the complete unit described in a seller summary.
Have appropriate reviewers assess condition and supported value. Record the basis, date, and limitations of that evidence. No chosen estimate should appear as an appraisal or actual market quote. The buyer's future replacement budget also needs its own assumptions.
A photograph can help identify an item, but it does not prove ownership, function, or value by itself. Keep the inspection, title or other ownership record, and proposed allocation connected. If the evidence changes, show which schedule line needs correction.
How should inventory be counted before values are assigned?
Agree on what is counted, where it sits, and when the count occurs. Include relevant warehouse shelves and vehicle stock within the purchased scope. Separate customer-owned, consigned, damaged, and excluded items. A supplier invoice does not establish how many usable units remain at closing.
Use a count record that can be checked against the stock ledger. Identify items by a stable description and unit. Mixed boxes of fittings, incomplete kits, and returned water heaters need enough detail for the parties to assess ownership and usable condition.
Do not assume all recorded inventory should carry full cost. The actual agreement, accounting basis, condition, and supporting review determine treatment. Explain proposed exclusions or adjustments. A broad haircut without an item-level reason is harder to reconcile than a documented count difference.
Which tax guidance applies to the transaction?
The IRS sale-of-business page explains that a business-asset sale is generally treated as separate asset sales for gain or loss. It also describes the residual method for covered transfers. That scope matters before allocating one overall price.
The Form 8594 instructions state filing conditions, exceptions, definitions, and asset classes. Each side's CPA should determine how they apply to the structure and actual facts. Do not turn a general business-assets explanation into a rule for every equity sale.
The instructions distinguish purchaser cost and seller amount realized. Tax treatment can therefore require more than copying the same cash-price line into two returns. Keep the agreed schedule and each side's professional analysis together, with unresolved differences explicitly recorded.
What belongs in the allocation working paper?
Use enough detail to reconcile the assets while avoiding private identity or payment data in a broad review copy. Link the controlled supporting files. Proposed values and classes should remain labeled until the parties and advisers have reviewed them.
| Field | Supporting record | Question to resolve |
|---|---|---|
| Purchased item | Signed included-asset list | Is it within the transaction? |
| Identifier or group | Register and physical count | Can it be matched without guessing? |
| Ownership | Title, invoice or other evidence | Who can transfer it? |
| Condition | Dated inspection or count note | Is an adjustment supported? |
| Proposed value | Actual valuation basis | Is the amount evidence-based? |
| Tax class | CPA review under applicable rules | How should the asset be reported? |
| Final schedule | Agreed dated version | Do both sides use consistent facts? |
Document changes after a count, inspection, or exclusion. A total that still matches price can conceal a wrong asset line. The reconciliation should explain both the sum and the reason each amount belongs in it.
Why do liens need a separate review?
The California UCC overview describes a public filing system for certain financing statements and other lien records. It is one jurisdictional example. Counsel should select the proper searches and ownership review for the actual debtor and assets.
An allocation agreement does not clear a lien or transfer a lease. The buyer may agree that equipment has a supported value while still needing a lender release or lessor consent. Record the allocation issue and the closing condition as distinct items.
Keep a debt payoff from quietly reducing an asset's fair market value field just to balance cash. The IRS instructions define fair market value unreduced by specified liens and liabilities, while other tax calculations have their own rules. Have the CPA assess the actual treatment.
How does inventory interact with working capital?
Use the working-capital guide to trace whether purchased stock is included in the peg, a separate adjustment, or another agreed price component. Follow the actual agreement. An allocation table and a closing adjustment should not independently add the same stock value to the cash price.
For a small illustration, assume the chosen purchase uses total $500,000 and include $20,000 of agreed inventory. Adding that same $20,000 again without a separate contractual basis would produce $520,000, a $20,000 difference. These are chosen figures, not target values or recommended terms.
A real reconciliation must address all relevant assets, liabilities, costs, and adjustments. The simple example only shows how a duplicate line can change the total. It does not set the proper peg, inventory basis, or tax allocation.
What happens when equipment is excluded or replaced?
Revise the purchased register first, then assess the related price, allocation, funding, and operating assumptions. An excluded service truck may affect day-one capacity as well as the asset schedule. Do not keep its proposed value in one document while removing it from another.
If the seller substitutes a machine, inspect and identify the replacement. Similar labels do not prove equal condition or ownership. Obtain the actual agreement to the change, and preserve the earlier and final versions so the closing team can explain the difference.
The add-back guide provides a related earnings review. A claimed repair or replacement add-back should have its own support. It cannot establish that a new asset is included or that its cost should be counted again in the purchase allocation.
What sequence produces a usable final schedule?
- Define included assets, exclusions, actual owners, and the transaction's tax structure.
- Reconcile fixed-asset records and counted stock to identifiers and physical evidence.
- Obtain supported value and condition review, keeping book basis separate.
- Have the CPAs assess asset classes, consideration, filing scope, and residual treatment.
- Reconcile the agreed schedule with price, working capital, payoffs, and closing documents.
The useful result is a supported allocation with a clear correction trail. Both parties can see what is purchased, why the amounts are used, and which tax or title questions remain. That clarity is more valuable than a tidy total built from assumptions nobody has checked.