In other words, the seller continues to retain ownership of the legal entity and must pay out all the existing liabilities and debts before taking or distributing the net cash proceeding from the sale of the various assets.<\/p>\n
What Are Assets?<\/strong><\/h2>\n <\/p>\n
\u00a0<\/strong>The\u00a0International Financial Reporting Standards (IFRS)<\/a>\u00a0framework defines an asset as follows:\u00a0\u201cAn asset is a resource controlled by the enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise.\u201d<\/p>\nFurther, assets can be segregated into tangible and\u00a0intangible assets<\/strong><\/a>:<\/p>\nTangible assets\u00a0refer to a company\u2019s assets that have a physical form and have been purchased by an organization to produce its products or goods, or to provide the services it offers. Tangible assets can be categorized as either fixed assets (which cannot be readily converted into cash), such as structures, land, and machinery, or as\u00a0current assets<\/strong><\/a>\u00a0(which can be easily converted into cash within the span of one year), such as cash,\u00a0accounts receivable<\/strong><\/a>, and inventory.<\/p>\n\n- Intangible assets<\/strong><\/a>\u00a0do not have a physical form, but still provide a future benefit to the company. They may include patents, logos, franchises, relationships, know-how, and trademarks.<\/li>\n<\/ul>\n
![\"Asset](\"https:\/\/intelekbusinessvaluations.com\/en-us\/wp-content\/uploads\/2022\/07\/Asset-Sales-1-300x188.jpg\")
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Buyer\u2019s Perspective for an Asset Sale:<\/u><\/h2>\n
\u00a0<\/strong><\/p>\nFrom the buyer\u2019s perspective, an asset sale is a safer option compared to a stock\/equity sale, mainly because they can easily avoid \u201cinheriting\u201d potential liabilities\u2014especially contingent liabilities in the form of product liability, contract disputes, product warranty issues, or employee lawsuits that remain with the legal entity after the assets are bought\/moved to a new entity. Therefore, the due diligence can then focus on vetting the\u00a0fair market value<\/strong><\/a>\u00a0of the assets acquired, as well as the quality of the contracts and employees being transferred over.<\/p>\nFurther, asset sales allow the buyer to \u201cstep-up\u201d the company\u2019s depreciable basis in its assets. The total assets purchased are allocated to the new company at certain values, and by allocating a higher value for assets that depreciate quickly (such as equipment, which typically has a three- to seven-year life span). By allocating lower values on assets that amortize slowly (such as goodwill, which could have up to a 15-year life span), the buyer could gain additional tax benefits. This practice could help in tax management and could improve the company\u2019s\u00a0cash flow<\/strong><\/a>\u00a0during the vital first years after the asset acquisition.<\/p>\nOn the other hand, asset sales may also pose complex situations and problems for the buyer, as certain assets are more difficult to transfer due to issues of assignability, legal ownership, and third-party consent. Apt examples of such assets include intellectual property, contracts, leases, and permits. Obtaining consent and refiling permit applications can slow down the transaction process considerably.<\/p>\n
Seller\u2019s Perspective for an Asset Sale:<\/u><\/h2>\n
Further, assets can be segregated into tangible and\u00a0intangible assets<\/strong><\/a>:<\/p>\n Tangible assets\u00a0refer to a company\u2019s assets that have a physical form and have been purchased by an organization to produce its products or goods, or to provide the services it offers. Tangible assets can be categorized as either fixed assets (which cannot be readily converted into cash), such as structures, land, and machinery, or as\u00a0current assets<\/strong><\/a>\u00a0(which can be easily converted into cash within the span of one year), such as cash,\u00a0accounts receivable<\/strong><\/a>, and inventory.<\/p>\n \u00a0<\/strong><\/p>\n From the buyer\u2019s perspective, an asset sale is a safer option compared to a stock\/equity sale, mainly because they can easily avoid \u201cinheriting\u201d potential liabilities\u2014especially contingent liabilities in the form of product liability, contract disputes, product warranty issues, or employee lawsuits that remain with the legal entity after the assets are bought\/moved to a new entity. Therefore, the due diligence can then focus on vetting the\u00a0fair market value<\/strong><\/a>\u00a0of the assets acquired, as well as the quality of the contracts and employees being transferred over.<\/p>\n Further, asset sales allow the buyer to \u201cstep-up\u201d the company\u2019s depreciable basis in its assets. The total assets purchased are allocated to the new company at certain values, and by allocating a higher value for assets that depreciate quickly (such as equipment, which typically has a three- to seven-year life span). By allocating lower values on assets that amortize slowly (such as goodwill, which could have up to a 15-year life span), the buyer could gain additional tax benefits. This practice could help in tax management and could improve the company\u2019s\u00a0cash flow<\/strong><\/a>\u00a0during the vital first years after the asset acquisition.<\/p>\n On the other hand, asset sales may also pose complex situations and problems for the buyer, as certain assets are more difficult to transfer due to issues of assignability, legal ownership, and third-party consent. Apt examples of such assets include intellectual property, contracts, leases, and permits. Obtaining consent and refiling permit applications can slow down the transaction process considerably.<\/p>\n\n
<\/p>\nBuyer\u2019s Perspective for an Asset Sale:<\/u><\/h2>\n
Seller\u2019s Perspective for an Asset Sale:<\/u><\/h2>\n
![\"\"](\"https:\/\/intelekbusinessvaluations.com\/en-au\/wp-content\/uploads\/2022\/07\/asset-sales.png\")
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