Purchase price allocation

Purchase price allocation (PPA) is the accounting process required under IFRS 3 following a business combination: allocating the total acquisition price to all identified assets and liabilities at their fair values, with the residual unallocated amount recognised as goodwill. Intangible assets that meet separability or contractual-legal criteria must be separately recognised — brands, customer relationships, technology, backlog, non-compete agreements. PPA directly determines the post-acquisition balance sheet, amortisation charges, and future impairment testing requirements.

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Example: acquisition of a Swiss software company for CHF 25.0 million triggers a PPA identifying: developed technology CHF 4.5 million (relief from royalty, 8-year life), customer relationships CHF 3.2 million (MPEEM, 7-year life) and backlog CHF 800,000 (2-year life). Net identifiable assets CHF 2.1 million. Residual goodwill = CHF 25.0 - 4.5 - 3.2 - 0.8 - 2.1 = CHF 14.4 million. Annual amortisation: CHF 562,500 + 457,000 + 400,000 = CHF 1.42 million.

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Hectelion conducts PPA engagements for IFRS 3 compliance, maximising intangible asset identification and producing conclusions that meet Big Four auditor standards.