Purchase price allocation (“PPA”) is an exercise undertaken by the acquirer to allocate the purchase price paid to the acquired assets and liabilities of the target company either in case of acquisition of an entity/business or assets under slum sale/slump exchange. PPA is required for accounting and financial reporting under IndAS 103 under which all business combinations requires (except group consolidation) to report the Fair Value of assets (tangible and intangible assets) and liabilities so acquired in the acquirer’s financial statements.
Intangibles need to be distinguishable and identified based on their unique characteristics.
PPA is a complex process and involve identification, measurement and valuation of tangible and intangible assets. The difference between the purchase consideration and the fair value of the tangible and intangible assets [including Valuation of contingent assets and liabilities, non-controlling interests, contract liabilities (deferred revenue) etc.] is allocated to goodwill.
Intangible assets can broadly be classified in five categories
Brand, Trademarks, Trade names, Internet domain names, Non-Compete Agreements
Customer lists, Backlog, Customer contracts
Plays, books, films and music, etc.
Licensing and royalty agreements, Service or supply contracts, Lease agreements, Permits, Broadcast rights, Servicing contracts, Employment contracts and Non-Compete agreements and Natural Resource rights
Patents, Softwares, unpatented tech., Databases etc.
For applying PPA, it not only requires an in-depth knowledge of the acquired business and its key value drivers, but also the knowledge and experience in the application of various valuation approach and methodologies.
Transique Valuation Advisors has a strong in-house capabilities for valuation of Financial and Intangible assets and for Property, Plant and Equipment, we have collaboration with leading firms in order to provide clients seamless and one point valuation services.