Purchase Price Allocation

Definition of PPA

Purchase price allocation (PPA) is an application of goodwill accounting whereby one company (the acquirer), when purchasing a second company (the target), allocates the purchase price into various assets and liabilities acquired from the transaction.*

Financial Reporting Requirement

Under IFRS 3 or ASC 805, it is imperative that the fair value of assets and liabilities acquired in a business combination are properly determined.

The fair values of the following that are acquired at acquisition date must be accurately measured:

  • Identifiable tangible and intangible assets
  • All forms of liabilities assumed, including contingent liabilities
  • Any non-controlling interest int he acquired entities

Good to know impact of PPA before completion of M&A

There is an advantage to understand and plan the impact that PPA has in your company’s earnings. Under constantly changing and increasingly complex accounting standards for reporting M&A transactions, the acquirer’s earnings could have some unintended material impact due to high amortization of intangible assets acquired, goodwill write-offs in future years etc as the acquired assets are assessed at fair values in future periods.

Contact

To find out how we can help you in Purchase Price Allocation please feel free to contact Henry Ong at ong@rocvalue.com or 6681-6713. He will be delighted to answer your questions.

 

 

* Source: Wikipedia