What is a Purchase Price Allocation or PPA?
Companies accounting under International Financial Reporting Standard 3 Revised (IFRS 3R) which acquire another company or business are required to ‘fair value’ the assets and liabilities of that acquired company or business as part of the accounting for the business combination.
This includes identifying acquired intangible assets such as brands, customer relationships and technology and determining their fair value.
The fair value of the identified acquired assets and liabilities is deducted from the purchase price and any residual value is allocated to goodwill. So effectively the purchase price is ‘allocated’ first to the identifiable assets and liabilities with any remaining value going to goodwill
How City Valuation Advisory can help
We work with our clients to assist them through the key steps in a Purchase Price Allocation presenting the results in a report.
In particular our role would typically include the valuation of intangible assets where our report would include:
- Valuation of intangible assets
- Details of valuation methodologies applied
- Key valuation inputs
- Benchmark data to support the inputs.
- Detailed valuation calculations
We believe it will be important that the process for preparing the PPA provides valuations that are
- prepared using industry accepted best practice valuation methodologies
- based on assumptions which are consistent with the commercial rationale for doing the deal
- stand up to scrutiny by the company’s auditors
- undertaken in a cost efficient process and prepared to deadline
We have extensive experience of working with clients in preparing PPAs for small and large transactions – see Credentials for some recent examples