Five Primary Actions to Prepare Purchase Price Allocation
Purchase price allocation is an important step in financial reporting after the completion of an M&A or business integration. It is defined as the tasks of assigning the cost of an acquired entity (also known as purchase price) to the assets acquired and liabilities assumed. Purchase price allocation is typically conducted in accordance with accounting standard ASC 805 (applicable in the US) or IFRS 3 Revised (applicable outside the US) and is based on the acquisition method of accounting. Primary actions for purchase price allocation: Understanding the transaction and investment rationale The first and foremost step is transaction analysis. Key points in this step include: Identifying the acquirer Determining the closing date Determining whether it is an asset purchase or stock purchase Understanding key investment rationale Determining purchase consideration Purchase consideration can take many forms such as cash, stock, earnouts, notes payable, and assumed