Machinery appraisal for purchase price allocation
When a business is bought as a set of assets rather than as stock, the purchase price is split across asset classes, and the machinery and equipment class needs a supported fair market value on the closing date. The appraiser values the tangible personal property. The buyer's CPA or tax advisor performs the allocation and files it. Lukes & Lukes is an independent appraisal firm; a NEBB-certified Machinery & Equipment Appraiser (CMEA) prepares every report, and a second senior appraiser reviews it.
By Jared Lukes · CEO & lead appraiser
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What allocation is, and where equipment sits in it
In an asset acquisition the parties do not just agree a total. They agree how that total is spread across the categories of assets that changed hands: cash, receivables, inventory, tangible personal property, real property, intangibles and goodwill. Machinery and equipment falls in the tangible personal property class, and it is usually the largest allocable category in an industrial or practice acquisition.
The allocation drives the buyer's depreciation basis going forward and the seller's character of gain. Both sides have a direct financial interest in where the dollars land, which is why an allocation supported by an independent appraisal holds up better than one negotiated across a table.
Why the equipment class gets examined
Equipment is the class an examiner can test. Machines have make, model, year, serial number and an observable resale market, so a value assigned to them can be checked against real transactions. Goodwill cannot be checked that way. An allocation that pushes an implausible amount onto equipment, or away from it, is visible to anyone who knows the market for those assets.
That is the practical reason to appraise rather than estimate. A schedule built from the units, with the comparable evidence attached, is the document that answers the question when it is asked.
Which premise applies
Allocation work is almost always fair market value, in place and in use, on the closing date. The buyer acquired a working operation, so the assets are valued installed and operating as part of a going concern, including the freight, rigging and installation that got them there.
That is a different value from the orderly or forced liquidation premises a lender orders on the same equipment, and a report written to the wrong one is not usable for this purpose. The premise is confirmed in the engagement before the work starts.
What the appraiser delivers, and what the CPA does with it
- An itemized schedule: every asset with make, model, year, serial number, condition and its own value, footing to a class total.
- The effective date: the closing date, because the allocation describes the assets as they were when they transferred.
- The approach and the evidence: which approach led, what comparable sales or cost data supported it, and what was adjusted.
- What was inspected: what the appraiser saw on site, and anything relied on from the seller's records rather than verified.
From there the allocation is the accountant's work. The buyer's CPA or tax advisor assigns the agreed total across the classes and reports it. We appraise the equipment and we do not prepare tax filings or give tax advice. On most transactions we work alongside the firm doing the rest, each covering the piece we are credentialed for. See how we work with CPAs and advisors.
When to order it
- Before closing, where the allocation is being negotiated into the purchase agreement and both sides want a supported figure in the schedule.
- At closing, which is the cleanest case, because the effective date and the inspection date line up.
- After closing, which is common and workable. The appraisal is written to the closing date as the effective date, and the report says plainly what had changed by the time of inspection.
The longer the gap between closing and inspection, the more the report leans on records rather than observation. Assets that were sold, traded or moved in the interval have to be reconciled against the seller's schedule.
Common questions
Answers, up front.
Does the appraiser decide the allocation?
No. The appraiser supplies a supported fair market value for the machinery and equipment class, with the schedule and evidence behind it. The buyer's CPA or tax advisor allocates the agreed purchase price across the asset classes and handles the reporting. We appraise equipment and we do not prepare tax filings or give tax advice.
Can the appraisal be done after the deal closes?
Yes, and it frequently is. The report is written to the closing date as its effective date. Assets sold, traded or relocated between closing and inspection are reconciled against the seller's schedule, and the report states what was observed against what was taken from records.
Is this the same value a lender would order on the same equipment?
No. Allocation work is fair market value in place and in use, valuing the assets installed and operating. A lender sizing collateral usually orders an orderly or forced liquidation value, which assumes the assets come out and sell. Same machines, different premises, different totals.
What if the buyer and seller already agreed the equipment figure?
An agreed figure can still be tested. If the appraisal supports it, the parties have independent evidence for the schedule. If it does not, both sides learn that before the position has to be defended rather than after.