31.205-52 Asset valuations resulting from business combinations
Source: FAR 31.205-52 on acquisition.gov
Contractors must not increase allowable depreciation or amortization costs on government contracts due to asset revaluations from business combinations.
Overview
FAR 31.205-52 addresses how contractors must value assets for cost-reimbursement purposes following a business combination (such as a merger or acquisition) when using the purchase method of accounting. It sets specific rules for both tangible and intangible capital assets to ensure that allowable costs charged to government contracts are fair and not artificially inflated due to the transaction.
Key Rules
- Tangible Capital Assets
- Depreciation and cost of money must be based on asset values assigned per 48 CFR 9904.404-50(d), provided the costs are allocable, reasonable, and not otherwise unallowable.
- Intangible Capital Assets
- Amortization and cost of money are capped at the amounts that would have been allowed if the business combination had not occurred.
Responsibilities
- Contracting Officers: Must ensure asset valuations and related costs are compliant with these rules during contract cost analysis and audits.
- Contractors: Must use proper asset valuation methods and not claim excessive depreciation or amortization due to business combinations.
- Agencies: Should monitor and review contractor submissions for compliance with these asset valuation requirements.
Practical Implications
- This rule prevents contractors from increasing allowable costs on government contracts by revaluing assets upward after a merger or acquisition.
- It ensures consistency and fairness in cost allocation, protecting the government from overpaying due to accounting changes.
- Common pitfalls include failing to use the correct valuation basis or attempting to claim higher amortization for intangible assets post-combination.
(a) For tangible capital assets, when the purchase method of accounting for a business combination is used, whether or not the contract or subcontract is subject to CAS, the allowable depreciation and cost of money shall be based on the capitalized asset values measured and assigned in accordance with 48 CFR9904.404-50(d), if allocable, reasonable, and not otherwise unallowable.
(b) For intangible capital assets, when the purchase method of accounting for a business combination is used, allowable amortization and cost of money shall be limited to the total of the amounts that would have been allowed had the combination not taken place.