When one company acquires another company, the regulatory and tax reporting authorities trigger the requirement of Purchase Price Allocation so as to determine the purchase price paid by the buyer for each acquired assets to the seller in the transaction.
Purchase Price Allocation – Objectives:
- Purchase Price Allocation (PPA) is mandatory required by regulatory authorities for financial and tax reporting purposes.
- Valuation for PPA is required from acquiring companies after the completion of each transaction that involves transfer of control or assets.
- PPA are important for acquiring companies as Intangible assets are amortized over their expected lives which have significant effect on reported Earnings.
- PPA accurately present the components of a company’s value including working capital, tangible and intangible assets, goodwill etc.
- PPA in-depth analysis of Purchase Agreement to incorporate the value of other parts such as contingent liabilities, earn-outs, payments in cash, payment in the form of stock or issuance of options etc.
- PPA also assist stakeholders to ascertain true value and seek more information about a company’s intangible value.
Purchase Price Allocation – Process:
- Determining purchase price and value of company’s total asset base.
- Identification of company’s underlying assets like tangible assets and intangible assets.
- Valuation of Identified assets and goodwill.
- Allocation of purchase price to company’s assets.
- Reconciliation of determined asset values.
Difference in Purchase Price Allocation – Financial Reporting and Tax Reporting:
Purchase Price Allocation may have standardized processes. Apart from differences due to nature of business, geography and underlying assets there can be differences due to purpose of performing PPA valuation, weather financial or tax reporting. Differences due to purpose of valuation impact the conclusions drawn significantly.
Key differences prevail in:
- Purchase price
- Standard of value
- Valuation methodology
- Analysis/ procedures
How we support you?
- Our professionals provide end to end valuations pertaining to Purchase Price Allocation including asset benchmarking, valuation, report making and other related services.
- Our analysts provide separate valuation of Intangible Assets considered for sale as well as reporting purposes.
- Our analysts will support you by providing in-depth and updated knowledge that is important for determining the value of each business or identified assets in any transaction.
- By providing support on extensive research related to identification of intangible assets across different industries, referred as Purchase Price Allocation Benchmarking.
- We assist in analyzing asset amortization benefits underlying fair value in relation to local or international accounting standards.
- Our professionals also assist in testing and determination of asset impairment consequences for tangible and intangible assets including goodwill.
We at Veristrat perform valuations and provide support on any type of Purchase Price Allocation for different purposes whether Tax or financial reporting across industries, geographies. Our dedicated team of professionals as well as support analysts focus on client requirements related to Purchase Price Allocation so as to provide high end quality driven results.