What is Identifiable Asset?

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An identifiable asset is an asset whose commercial or fair value can be measured at a given point in time, and which is expected to provide a future benefit to the company. These assets are an important consideration in the context of mergers and acquisitions.Because not all assets on a company's balance sheet are able to be quickly and accurately valued at a point in time, only those which are may be classified as identifiable. Examples include cash, short-term liquid investments, property, inventories, and equipment, among others.Identifiable assets may be contrasted with goodwill.

Definition

Identifiable assets are those whose commercial or fair value can be measured at a specific point in time and are expected to provide future benefits to a company. In the context of mergers and acquisitions, these assets are a significant consideration.

Origin

The concept of identifiable assets originated from the need for accurate accounting and financial reporting, especially in merger and acquisition transactions. As corporate mergers and acquisitions increased, the accurate assessment and reporting of a company's asset value became crucial. In the late 20th century, International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP) began emphasizing the importance of identifying and reporting identifiable assets in financial statements.

Categories and Features

Identifiable assets can be categorized into tangible and intangible assets. Tangible assets include cash, short-term investments, real estate, inventory, and equipment, which can typically be assessed through market prices or valuation models. Intangible assets include patents, trademarks, and customer relationships, which may be more challenging to value but are equally important. A key feature of identifiable assets is their measurability, making them significant in financial reporting and M&A transactions.

Case Studies

In 2016, when Microsoft acquired LinkedIn for $26.2 billion, Microsoft identified LinkedIn's identifiable assets, including its user data and brand value. The identification and valuation of these assets helped Microsoft justify its acquisition price and accurately reflect LinkedIn's value in its financial statements. Another example is Google's acquisition of Nest Labs in 2014, where Google identified Nest's patents and technology as identifiable assets, supporting Google's smart home strategy.

Common Issues

Investors often face the risk of inaccurate valuation when assessing identifiable assets, particularly for intangible assets. Additionally, confusing identifiable assets with goodwill is a common misconception. Goodwill refers to the premium paid in an acquisition, while identifiable assets are specific assets that can be valued separately.

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