ASC 805 Purchase Price Allocation
Navigate business combination accounting with confidence. CPCON delivers defensible purchase price allocations that satisfy auditors, regulators, and stakeholders.
What Is Purchase Price Allocation and Why Does It Matter?
Under ASC 805 (Business Combinations) and IFRS 3, every acquisition requires the acquirer to allocate the purchase price to the identifiable assets acquired and liabilities assumed at their fair values. The difference between the total consideration and the net fair value of identifiable assets is recorded as goodwill.
A well-executed PPA is not just a compliance exercise — it directly impacts your income statement through amortization of intangible assets, your balance sheet through asset and liability recognition, and your future impairment testing obligations. Errors in the initial allocation can trigger restatements, audit qualifications, and regulatory scrutiny.
CPCON brings deep valuation expertise and industry knowledge to every engagement, ensuring that your purchase price allocation is defensible, well-documented, and audit-ready from day one.
Our Purchase Price Allocation Process
A structured, six-step methodology that ensures every PPA is thorough, defensible, and delivered on time.
Transaction Analysis
We review the purchase agreement, deal structure, consideration components (cash, stock, earnouts), and identify the acquisition date and accounting acquirer per ASC 805 guidance.
Asset & Liability Identification
Comprehensive identification of all tangible assets, intangible assets (customer relationships, technology, trade names, non-competes), and assumed liabilities at the acquisition date.
Fair Value Measurement
Application of appropriate valuation methodologies — income approach (MEEM, relief from royalty), market approach, and cost approach — to determine fair value for each identified asset and liability.
Goodwill Calculation
Residual goodwill is calculated as the excess of total consideration over the net fair value of identifiable assets and liabilities. We document the economic rationale supporting the goodwill amount.
Useful Life Determination
Assignment of appropriate useful lives to each intangible asset based on contractual terms, expected economic benefit periods, and industry benchmarks for amortization scheduling.
Documentation & Reporting
Comprehensive valuation report with detailed methodology descriptions, key assumptions, sensitivity analyses, and supporting schedules — ready for auditor review and regulatory filing.
Assets & Liabilities We Value in a PPA
A comprehensive PPA identifies and values all tangible and intangible assets acquired and liabilities assumed in the business combination.
Customer-Related
- Customer relationships
- Customer contracts & backlog
- Customer lists
- Non-contractual customer relationships
Technology-Related
- Developed technology / software
- In-process R&D (IPR&D)
- Patents and patent applications
- Trade secrets and know-how
Marketing-Related
- Trade names and trademarks
- Internet domain names
- Non-compete agreements
- Licensing and franchise agreements
Contract-Based
- Favorable lease agreements
- Supply contracts
- Service agreements
- Employment contracts
Tangible Assets
- Real property (land & buildings)
- Machinery & equipment
- Furniture, fixtures & vehicles
- Inventory at fair value
Liabilities Assumed
- Deferred revenue (fair value)
- Contingent liabilities
- Unfavorable contracts
- Deferred tax liabilities
Valuation Methodologies
We apply the appropriate valuation approach for each asset class, consistent with ASC 820 fair value measurement hierarchy and AICPA guidance.
Income Approach
Values assets based on the present value of expected future economic benefits attributable to the asset.
Primary method for customer relationships and developed technology
Trade names, trademarks, and patented technology
Non-compete agreements and assembled workforce
Broadcast licenses and similar regulatory assets
Market Approach
Values assets by reference to comparable transactions or publicly traded comparable companies.
Business enterprise value benchmarking
Comparable M&A transaction multiples
Market-derived royalty rates for intangibles
Recent arm's-length transactions involving the subject asset
Cost Approach
Values assets based on the cost to reproduce or replace the asset, adjusted for obsolescence.
Tangible assets, developed software, assembled workforce
Unique or specialized assets
Customer lists, databases, and proprietary processes
Machinery, equipment, and real property
PPA Best Practices
Lessons from hundreds of completed purchase price allocations — these practices help ensure a smooth, defensible process.
Engage Valuation Experts Early
Involve your PPA team during due diligence — not after closing. Early engagement allows for better data collection, preliminary asset identification, and realistic timeline planning.
Document Everything Thoroughly
Auditors and regulators expect detailed documentation of assumptions, data sources, methodology selection rationale, and sensitivity analyses. Comprehensive documentation prevents challenges.
Apply Consistent Methodologies
Use valuation approaches consistent with ASC 820 fair value hierarchy. Ensure that the selected methodology is appropriate for each asset class and supported by market evidence.
Coordinate With All Stakeholders
Align with deal counsel, tax advisors, auditors, and management on key assumptions. Misalignment between the PPA and tax allocation can create costly reconciliation issues.
Meet the Measurement Period Deadline
ASC 805 allows up to one year from the acquisition date to finalize the PPA. Plan your timeline to complete the allocation well before this deadline to avoid provisional adjustments.
Consider Post-Acquisition Implications
The PPA directly affects future amortization expense, goodwill impairment testing, and tax positions. Model the income statement and balance sheet impact before finalizing allocations.
Frequently Asked Questions
Common questions about purchase price allocation, ASC 805 compliance, and CPCON\u0027s valuation services.
Need a Purchase Price Allocation?
Whether you have a pending acquisition or need to revisit a prior PPA, our valuation team is ready to help. Tell us about your transaction and we will respond within one business day.
Get Your PPA Right the First Time
A defensible purchase price allocation protects your financial statements and satisfies auditors. Let CPCON\u0027s experienced valuation team deliver the accuracy and documentation your transaction demands.
