What is a Purchase Price Allocation?
An acquiring entity must allocate the purchase price to the assets acquired and liabilities assumed based on estimated fair values at the date of acquisition;
The excess of the cost of an acquired entity (including tangible and intangible assets) over the net of the amounts assigned to assets acquired and liabilities assumed is recorded as Goodwill;
Why Purchase Price Allocation?
Intangible assets recognized separately from goodwill must be valued and amortized for financial reporting purposes, if appropriate This may result in better Tax planning for undertaking the transactions of acquisition of assets and liabilities; Under Slump sale transaction, specifically the Intangible Assets can be separately accounted for by the Acquirer and Depreciation also claimed under the provisions of Indian Income Tax Law.
IFRS 3: Business Combinations, requires the allocation of the purchase price in a purchase combination to be allocated between tangible and intangible assets based on fair value.
It may be noted that even under IFRS, there is no separate requirement of accounting separately for Intangibles. Thus the Valuation of Intangibles is needed specifically for PPA