Purchase price allocation

Allocate acquisition-date consideration to identifiable assets and liabilities at supported fair values, with the residual recorded as goodwill under the applicable accounting framework.

Quick answer

A purchase price allocation, or PPA, is the acquisition-accounting exercise that recognises and measures the identifiable assets acquired and liabilities assumed at the acquisition date and determines the resulting goodwill or bargain-purchase amount. It may require valuation of customer relationships, technology, brands, property, inventory, deferred tax and contingent consideration. The accounting allocation is separate from the commercial enterprise-value-to-equity-value bridge.

Use the worked example

Meaning and transaction use

An SEC-filed annual report states that ASC 805 requires identifiable assets acquired and liabilities assumed to be recorded at estimated acquisition-date fair values and presents the resulting goodwill. [S1]

Another SEC-filed annual report explains that acquisition-method accounting allocates consideration to identifiable tangible and intangible assets and liabilities based on estimated fair values, with excess consideration recorded as goodwill. [S2]

Proposed control method: reconcile legal entities, consideration and closing balances first; then maintain a valuation register for each asset and liability, its method, assumptions, useful life, tax basis, reviewer and financial-statement destination.

Worked example

Illustrative simplified PPA only. Assume accounting consideration of 70.0 million, identifiable assets at fair value of 90.0 million and liabilities at fair value of 35.0 million. Assume no non-controlling interest or previously held interest and ignore deferred tax and measurement-period changes.

Scroll the table horizontally to view all columns.

Measure	Calculation	Result
Identifiable assets	Given	90.0m
Liabilities assumed	Given	35.0m
Identifiable net assets	90.0 - 35.0	55.0m
Illustrative goodwill	70.0 - 55.0	15.0m
Goodwill as share of consideration	15.0 / 70.0	21.4%

The simplified allocation produces 15.0 million of goodwill. A complete allocation may change the recognised asset, liability, tax and goodwill amounts.

Proposed transaction review process

Define the accounting transaction

Confirm acquirer, acquisition date, transferred consideration and acquired entity perimeter.

Reconcile opening balances

Map acquired balances to closing records and identify recognition or classification differences.

Value identifiable items

Select methods and support assumptions for tangible assets, intangibles, liabilities and contingent items.

Record and disclose

Calculate goodwill, useful lives, deferred tax, journal entries, sensitivities and required disclosures.

Evidence checklist

Transaction evidence

Executed agreements, closing statement, consideration schedule and ownership records.

Opening balance evidence

Trial balance, policies, contracts, fixed assets, inventory and liability schedules.

Valuation evidence

Forecasts, market data, attrition, royalty, margin, discount-rate and useful-life support.

Accounting evidence

Technical memorandum, deferred-tax analysis, journals, disclosures and review approvals.

Decision framework

Situation	Proposed action
A contractual right is not on the target balance sheet	Assess separate recognition and fair value under the applicable accounting framework.
Forecasts differ from deal underwriting	Reconcile the bases and document the approved acquisition-date assumptions.
Valuation remains provisional	Label the preliminary allocation and track evidence and changes through the permitted measurement period.
Goodwill is unexpectedly high	Recheck consideration, acquired perimeter, identifiable intangibles, liabilities and tax effects.

Common errors to check

Confusing the PPA with the enterprise-value-to-equity-value bridge.
Omitting identifiable intangible assets because they were not previously recognised.
Using deal forecasts without reconciling acquisition-date assumptions.
Ignoring deferred tax, useful lives or subsequent impairment implications.

Reconcile the purchase price allocation

Bring the closing documents, opening balance sheet, forecasts and valuation support to a PPA review. Map every recognised item, assumption and journal entry to auditable evidence.

Discuss the transaction

Primary references and editorial scope

SEC filing: Preliminary purchase price allocation under ASC 805
Example acquisition-date fair values, identifiable assets and liabilities, goodwill and significant valuation judgements. Reference checked 17 September 2026.
SEC filing: Acquisition-method accounting for business combinations
Example allocation of consideration to identifiable assets and liabilities with residual goodwill. Reference checked 17 September 2026.

Editorial qualification

General accounting and transaction education with United States public-company examples. Figures are hypothetical. Applicable accounting standards, valuation methods, audit requirements, tax treatment and disclosures depend on the transaction and reporting framework.

General business information. Obtain advice appropriate to the legal, tax, accounting and financing facts. No offer, lender commitment or transaction outcome is represented. All worked examples use expressly assumed figures. Editorial draft date: 17 September 2026.