Purchase price allocation
Acquisition accounting that identifies and measures the assets acquired and liabilities assumed at the acquisition date under the applicable accounting framework. In a business combination, the resulting net assets enter the goodwill calculation; asset acquisitions follow different rules.
Purchase price allocation in round numbers
Hypothetical US$ millions: a buyer acquires 100% of a business for consideration of 50. Acquisition-date identifiable assets are measured at 45 and assumed liabilities at 7, giving net identifiable assets of 38. With no prior interest, noncontrolling interest or other goodwill adjustments, goodwill is 50 − 38 = 12.
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| Component | Amount |
|---|---|
| Identifiable assets | 45 |
| Less liabilities assumed | −7 |
| Net identifiable assets | 38 |
| Consideration | 50 |
| Goodwill: consideration less net assets | 12 |
Terms Related to Purchase price allocation
Goodwill · Fair market value · Book value · Impairment · All of the glossary