What is the process of conducting purchase price allocation?

A purchase price allocation (PPA) categorizes the purchase price from an acquisition into the various assets and liabilities acquired.
A large component of the PPA is the identification and assignment of the fair market value of all tangible and intangible assets and liabilities assumed in a business acquisition as at the date of closing.
The difference between the purchase price and the sum of assets and liabilities is then recognized as goodwill.
This exercise is a requirement for various widely recognized accounting reporting standards.

Reviewing a purchase price allocation report can be a daunting task if you don’t do it for a living – especially if you aren’t familiar with the rules and standards governing the allocation process and the valuation methods used to determine the fair value of intangible assets.
While it can be tempting as a financial manager to leave this job to your auditor and valuation specialist, it is important to stay on top of the allocation process.
Too often, managers find themselves struggling to answer eleventh hour questions from auditors or being surprised by the effect on earnings from intangible asset amortization.
This guide is intended to make the report review process easier while helping to avoid these unnecessary hassles.
Please note that a review of the valuation methods and fair value accounting standards is beyond the scope of this guide.
Grappling with these issues is the responsibility of the valuation specialist, and a purchase price allocation report should explain the valuation issues relevant to your particular acquisition.
Instead, this guide focuses on providing an overview of the structure and content of a properly prepared purchase price allocation report.