Purchase price allocation (PPA) is an application of goodwill accounting whereby one company (the acquirer), when purchasing a second company (the target), allocates the purchase price into various assets and liabilities acquired from the transaction.
With respect to the assignment of goodwill and other asset values, valuations for financial reporting purposes involve the allocation of asset values at the reporting unit level, and the acquired assets can be added to an acquirer’s existing reporting units.
Value Being Adjusted to Fair Value
Book values of assets and liabilities are often different from their fair values. In allocating the purchase price to these assets and liabilities, we step, or write, them up/down to reflect their fair values.
Valuation of Intangibles Assets
Examples of identifiable intangible assets may include customer contracts, Internet domain names, patents and trademarks, brand names, copyrigts, concession rights, non-compete agreements, licences or permits in specific regulated industries, profit guarantees etc. As much we value our employees, assembled workforces are not considered identifiable intangibles under IAS 38.