PPA (Purchase Price Allocation)

Category: finance

An accounting practice where an acquirer allocates the total purchase price of an acquisition into the target’s identifiable assets and liabilities.

Following a closing event, PPA breaks down the transaction price on the balance sheet. Net tangible assets (like machinery or real estate) and identifiable intangible assets (like patents, proprietary source code, or customer lists) are valued at fair market value. Any remaining premium paid that exceeds these combined values is categorized as "Goodwill."

Common Examples

• The corporate controller initiated a third-party audit for the purchase price allocation process to accurately value the acquired company’s software patents.
• Under IFRS and GAAP rules, an accurate purchase price allocation is mandatory within one year of completing a corporate acquisition.