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    Am I interpreting CAS 404.50(d)(1) and (2) correctly that the acquiring contractor can divide the acquired assets into two groups. Those assets that generated depreciation expense charged to government contracts in the prior accounting period cannot be recapitalized at current market value. Those assets that did not generate depreciation charged to Government contracts the prior accounting period can be recapitalized at the current fair market value. Or conversely, do you look at the acquired company as a whole and only if none of its assets generated depreciation expense the prior accounting period can you recapitalize at current market value?


    Answer

    I would interpret these parts of the CAS 405 cited [48 CFR 9904.404-50(d)(1) and (2)] by treating the company as a whole, rather than dividing up individual assets that did or did not generate depreciation expense. The phrase -  “All the tangible capital assets of the acquired company . . . “ [emphasis added] – appears to lead both paragraphs 50(d)(1) and 50(d)(2). And then each of these two paragraphs goes on to describe two possible states of nature where the company being acquired either did, or did not, generate depreciation expense allocated to Federal contracts. But in either case - All the tangible capital assets of the acquired company will be treated consistently to either allow all the assets to be capitalized at the current fair market value [paragraph 50(d)(2)], or not [paragraph 50(d)(1)].

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