Purchase Price Allocation(PPA)

What is PPA ?

Purchase price allocation is an allocation of the purchase price paid to the assets and liabilities included in a transaction. The target must appraise the assets and liabilities being acquired to determine their Fair Value. Goodwill is calculated as a difference between the purchase price and the total value of assets and liabilities of an acquired company.

Why is PPA Important ?

All business combinantions within IFRS 3’s scope should be accounted for using acquisition method, which generally requires assets acquired and liabilities assumed to be measured at their fair values at the acquisition date. PPAs represent a reporting requirement for both financial and tax reporting purposes.

PPA Procedure

(1) Identification of the ‘acquirer’, and determination of the ‘acquisition date’

(2) Determination of the ‘acquisition date’

(3) Recognition and measurement of the identifiable assets acquired, the liabilities assumed and any non-controlling interest (NCI, formerly called minority interest) in the acquiree

(4) Recognition and measurement of goodwill or a gain from a bargain purchase