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Any asset that has an Economic Value and can be used for profits in the future can be classified as an identifiable asset. Simply put, the Identifiable assets, meaning is the company’s asset the value of which can be calculated. Identifiable assets are extremely important when a company decides to merge with another company. The party that’s planning to acquire a company will take a look at the company’s identifiable asset to determine its financial position and commercial value.
Note that not all types of assets can be classified as identifiable assets. That’s because the value of only certain assets can be measured. The common examples of the identifiable assets in a company are your property, tools and equipment, inventories, cash, and more. If you can’t measure the value of the assets, then it will be categorized as the goodwill.
Let’s understand the concept with an example.
Suppose you purchase a workplace for $5 million. Now, all your business operations will be executed from this building. This $5 million building you have purchased for managing the day-to-day business operations will be the identifiable asset. It is important for the Accountant to reflect this as the identifiable asset in the company’s Balance Sheet.
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In order to conduct business’ financial analysis and generate accurate financial reports, businesses need to calculate the value of their identifiable assets. When a company decides to take over another company, they measure the value of all the identifiable assets and allocate a fair commercial value to each asset.
If the value of the asset is measured, then the company that’s buying these assets will mention them in the asset section of the balance sheet. In other words, identifiable assets can be defined as anything that could be disposed of. It includes all the assets that are an important part of the company, but can be disposed of separately if required. If the acquiring company is unable to measure the value of the particular asset, then they can record it as the goodwill in the balance sheet.
The common example of the asset that can’t be classified as an identifiable asset is the amount a company spends for the future earning potential. Let’s say a company decides to acquire a digital marketing firm and a Manufacturing company. Now, most of the assets they get from the manufacturing company will be identifiable. However, digital marketing doesn’t have physical assets the value of which can be measured. These assets will be recorded as goodwill. Even if the digital marketing company has a few tangible assets, there is a good chance they will be recorded as goodwill.
These types of transactions can generate a considerable amount of goodwill for the company. It is important for businesses to record identifiable assets in the balance sheet to showcase their financial position. You are going to have to show the identifiable assets to the acquiring party to complete the acquisition transaction.