An acquirer recently purchased a software design firm that has a wonderful reputation and skilled workforce. The acquirer paid a lump sum to buy the entire company. The software firm's two main assets are its patents and its goodwill. The acquirer dishonestly wants to boost its reported near-term profits.
a. For financial reporting purposes, would you expect it to allocate disproportionately more, or less, of the purchase price to the patents?
b. For tax reporting purposes, would you expect it to pursue the same strategy that you determined in question a? What further information would you need to know before making that decision?