Purchase Price Allocation (PPA)
What is it and why should I be bothered?
Under the American Standard Codification (ASC) 805, a purchase price of a business combination transaction needs to be allocated into identifiable assets acquired and liabilities assumed at Fair Value. The identifiable finite-lived assets are then depreciated/amortized over their remaining useful lives.
Elevated amortization due to this PPA exercise can result in significant tax benefits. Hence, the Tax authorities investigate these allocations very rigidly based on all the standards mentioned in ASC805. Thus, PPA is a very critical exercise which if done properly can save a lot of taxes, and if not done properly can result in very high penalties.
Furthermore, due to financial reporting requirements, it is imperative for public companies to undergo this process and report the PPA in their financial statements.
Our Professionals have an in-depth understanding of financial reporting valuation requirements pursuant to ASC 805, which aids us to provide insightful and supportable PPA reports to our clients (AND, at competitive prices for our services). Additionally, our team members possess extensive Big4 audit experience, which enables us to look at any analysis from the Auditor’s viewpoint and sail through audits smoothly.
We have team members who have experience in working with Big4 Audit firms like EY and PwC, which gives ABVS an edge due to this extensive audit experience.
ABVS assists clients in providing solutions to complex issues arising at various stages in a PPA engagement:
1. Pre-acquisition pricing analysis, including estimation of accretion/ dilution.
2. Valuation or structuring of contingent consideration.
3. Acquisition-date fair value measurement (or Fairness opinion) of the consideration transferred, any previously-held equity interests and any remaining noncontrolling interests.
4. Fair value measurement of contract liabilities (a.k.a. deferred revenue) and other liabilities.
5. Valuation of options to buy/sell equity interests.
6. Allocation of purchase price and goodwill to reporting units (cash generating units).
7. Legal entity valuations for tax purposes in connection with the business combination.