Purchase Price Allocation

Purchase Price Allocation (PPA) is the process of dividing the total amount paid when acquiring a company into the values of its individual assets and liabilities. This ensures that the purchase price is fairly assigned to tangible assets like equipment and real estate, intangible assets such as trademarks or customer relationships, and any debt or liabilities. Properly allocating the purchase price is important for accurate financial reporting, tax purposes, and understanding the acquired company’s true value. It provides transparency and allows businesses to reflect the true worth of what they have purchased on their financial statements.