Purchase Price Allocation
A Purchase Price Allocation (PPA) occurs after a business has been acquired, and consists of distributing the purchase price among the acquired assets and liabilities. All intangible assets that have been identified are required to be valued and analyzed. To comply with generally accepted accounting principles (GAAP) for financial reporting under ASC 805, an acquirer needs to report the specific types and associated fair values of the acquired tangible (monetary and non-monetary) and intangible assets. These fair values are included on the opening post-acquisition balance sheet and are periodically adjusted to reflect depreciation and amortization charges, which reduce the carrying value of the associated asset (carrying value is calculated as the difference between original fair value, less cumulative depreciation and amortization charges). Intangible assets that are not amortized, such as goodwill, must be tested for impairment on at least an annual basis.
The Purpose
Business owners are expected to complete a PPA for tax reporting purposes. Both the buyer and the seller must report their own understanding of the PPA and assure they each report the same information since the IRS audits both parties. Although a PPA is a critical component of accounting, it also serves as an analysis of the components that constitute a goodwill.
Trigger Event
- Acquiring a business
- Selling a business
Scalar’s Services
Scalar is a leading business valuation firm that has completed thousands of valuations. Our team of highly-qualified specialists can provide accurate, timely, and unbiased opinions of value that withstand scrutiny by auditors, attorneys, lenders, and regulatory agencies. Our focus on valuation enables us to attain the highest level of technical proficiency and maintain the highest valuation standards.