What is Purchase price allocation?
Practice of allocating the purchase consideration (PC) paid to acquire an asset/business into tangible and intangible assets and liabilities as at the Acquisition date. Valuation is done for the Acquisition date.
Residual purchase consideration is recorded as goodwill/bargain purchase in the acquiring company’s books.
PPA is required as per the IND AS 103 – Business Combination
IND AS 103 does not apply to:
Formation of joint arrangements
Acquisition of an asset or a group of assets that does not constitute a business.
What constitutes a Business Combination?
A transaction or an event where the Acquirer obtains control (i.e. Power to govern the financial and operating policies of an entity to obtain benefits from its activities) of one or more business structure-based on legal /tax considerations
Purchase Price Allocation Framework
Ind AS 113 - Fair Value Measurement and Ind AS 103 - Business Combinations provide a framework for Purchase Price Allocation. A summarized framework of Purchase Price Allocation is given hereunder: