Purchase Price Allocation
Also known as: PPA, Allocation of Purchase Price
Purchase price allocation (PPA) is the process of assigning the total price paid in a deal across the acquired assets and liabilities, including goodwill, for accounting and tax purposes.
Purchase price allocation, or PPA, divides the total purchase price among the individual assets and liabilities acquired in a deal. Whatever is paid above the fair value of identifiable net assets is recorded as goodwill.
Why it matters
The allocation drives future depreciation and amortization, which affects reported earnings and, in an asset deal, the buyer’s tax deductions. Both sides care because the split influences taxes owed and paid.
Goodwill and intangibles
A meaningful portion of the price often lands in intangibles like customer relationships, brand, and technology, with the remainder in goodwill. How aggressively these are valued is a judgment call that auditors and tax authorities scrutinize.