What is Purchase Price Allocation (PPA)?
Purchase price allocation is the process of assigning the total consideration paid in a business combination to the identifiable assets acquired and liabilities assumed at fair value, with the residual recognized as goodwill or as a bargain purchase gain. Under IFRS 3, the acquirer has up to 12 months to finalize the allocation.
How It Works
- Identify all assets acquired and liabilities assumed.
- Measure each at acquisition-date fair value, including intangibles not previously recognized.
- Allocate the consideration accordingly.
- Recognize the residual as goodwill (if positive) or bargain purchase gain (if negative).
Saudi Context
Saudi listed acquirers complete PPA exercises with valuation specialists to identify customer relationships, brands and technology assets that were not on the target’s books.
Example
A SAR 500 million acquisition allocates SAR 300 million to net tangible assets, SAR 150 million to identifiable intangibles (brand and customer relationships) and SAR 50 million to goodwill.