Purchase Price Allocations IFRS 3 / ASC 805
What is this?
Purchase Price Allocations (PPA) under IFRS 3 / ASC 805 involve allocating the purchase price of an acquired business to its identifiable assets and liabilities based on their fair values.
A typical purchase price allocation (PPA) process usually encompasses the determination of the purchase price paid on a 100% basis, derivation of net assets, valuation of newly identified intangible assets (including brands, customer relationships, order backlogs, etc.), performing FV adjustments (e.g., revaluation of inventories, haircut on deferred revenues, etc.), as well as deriving deferred tax liabilities from identified assets. This process is crucial for financial reporting purposes, providing stakeholders with transparency regarding the assets and liabilities acquired and their respective values.
When would you need it?
Purchase Price Allocations are essential for companies involved in M&A transactions.
Here are some scenarios where PPAs become crucial:
1
Business
Combinations:
Your company is acquiring another business or a significant portion of its assets. A PPA is necessary to allocate the purchase price to individual assets and liabilities, enabling accurate financial reporting and compliance with accounting standards.
2
Financial
Reporting:
Your company needs to prepare consolidated financial statements following an acquisition. A PPA provides the necessary information to recognize and report the acquired assets and liabilities at their fair values, ensuring compliance with IFRS 3 / ASC 805 and other relevant accounting standards.
3
Impairment
Testing:
Following an acquisition, your company needs to assess the recoverability of goodwill and other intangible assets. The fair values determined through the PPA process serve as a basis for impairment testing, helping to identify potential impairments and adjust carrying values accordingly.