Definition

Purchase Price Allocation (PPA)

Purchase Price Allocation is the accounting exercise that spreads the price paid in an acquisition across the assets and liabilities acquired, recording each at fair value. The buyer assigns amounts to tangible items, identifiable intangibles like customer relationships and technology, and then books any leftover as goodwill. This allocation shapes future financial statements, since intangibles get amortized and goodwill is tested for impairment. Both US GAAP and IFRS require it for business combinations, and the fair value work often calls for a valuation specialist. Getting the PPA right matters because it drives years of reported earnings and the balance sheet that follows the deal.