FAR 31.205-52—Asset valuations resulting from business combinations.
Plain-English Summary
FAR 31.205-52 addresses how contractors must measure allowable depreciation, amortization, and cost of money when a business combination is accounted for under the purchase method. It covers two separate asset categories: tangible capital assets and intangible capital assets. For tangible assets, it ties allowability to the capitalized asset values assigned under CAS 9904.404-50(d), even if the contract or subcontract is not subject to CAS, so long as the costs are allocable, reasonable, and not otherwise unallowable. For intangible assets, it imposes a ceiling: allowable amortization and cost of money cannot exceed the amounts that would have been allowable if the business combination had not occurred. The purpose is to prevent contractors from increasing Government-reimbursable costs simply because an acquisition or merger changed the book basis of assets. In practice, this section requires careful post-acquisition cost accounting, documentation of asset valuations, and a clear distinction between tangible and intangible assets when proposing or billing indirect costs.
Key Rules
Tangible assets use CAS values
When the purchase method of accounting is used for a business combination, allowable depreciation and cost of money for tangible capital assets must be based on the capitalized asset values measured and assigned under 48 CFR 9904.404-50(d). This applies whether or not the contract or subcontract is subject to CAS.
Basic allowability still applies
Even when the CAS-based asset values are used, the resulting depreciation or cost of money is allowable only if it is allocable, reasonable, and not otherwise unallowable under FAR cost principles.
Intangible assets are capped
For intangible capital assets acquired in a purchase-method business combination, allowable amortization and cost of money are limited to the amounts that would have been allowable if the combination had not occurred. The acquisition cannot create a higher Government-reimbursable cost base for intangibles.
Purchase method is the trigger
This rule applies specifically when the business combination is accounted for using the purchase method. If another accounting treatment applies, this section does not control the allowability outcome in the same way.
Applies to contracts and subcontracts
The tangible-asset rule expressly applies regardless of whether the underlying contract or subcontract is subject to CAS, so contractors cannot avoid the valuation rule by pointing to CAS coverage status.
Responsibilities
Contractor
Must identify business combinations accounted for under the purchase method, segregate tangible and intangible capital assets, and calculate allowable depreciation, amortization, and cost of money using the required valuation rules. The contractor must also ensure claimed amounts are allocable, reasonable, and otherwise allowable, and maintain support for the post-acquisition asset basis and related calculations.
Contracting Officer
Must evaluate claimed depreciation, amortization, and cost of money for compliance with FAR allowability rules, including whether the contractor used the correct asset values and whether the claimed amounts exceed the limits for intangible assets. The contracting officer should request supporting documentation when acquisition-related valuations affect proposed or billed costs.
Auditor or DCAA
May test whether the contractor applied the correct purchase-method valuations, properly distinguished tangible from intangible assets, and limited intangible amortization and cost of money to the pre-combination allowable amounts. Auditors also verify that the claimed costs are supported, allocable, and not otherwise unallowable.
Agency
Must apply the cost principle consistently in pricing, billing, and cost allowability determinations, and ensure acquisition-related accounting changes do not shift unallowable or inflated costs to the Government.
Practical Implications
Acquisitions can change the book basis of assets, but they do not automatically increase what the Government will reimburse. Contractors need acquisition accounting and government cost accounting to line up correctly.
The biggest risk is misclassifying assets or using the wrong post-acquisition basis, especially where goodwill, customer relationships, patents, or other intangibles are involved.
For tangible assets, contractors should be prepared to show how the CAS 9904.404-50(d) values were measured and assigned, even on non-CAS contracts.
For intangible assets, the key check is whether the claimed amortization or cost of money exceeds what would have been allowable before the business combination; if it does, the excess is unallowable.
This section often affects forward pricing rates, incurred cost submissions, and audit support, so contractors should preserve acquisition documents, valuation reports, and depreciation/amortization schedules.
Official Regulatory Text
(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.