Purchase Price Allocation (PPA): Managing ASC 805 Compliance

When a business combination happens, the deal doesn’t end at close. Under ASC 805 (US GAAP), buyers must allocate the purchase consideration across:

• identifiable tangible assets
• identifiable intangible assets
• assumed liabilities
• and the remainder as goodwill

This PPA impacts future:

• amortisation expense
• impairment testing
• earnings quality
• audit readiness and disclosures

Explore More:

• PPA service
• Financial Reporting Valuation
• White-label valuation support for firms

1) Why ASC 805 PPAs are high-stakes in 2026

In 2026 markets, valuation scrutiny is higher—especially around:

• discount rates and market participant assumptions
• customer attrition and CAC assumptions
• technology obsolescence and useful lives
• working capital and deferred revenue fair value

Even a “small” shift in intangible value allocation can move:

• earnings
• effective tax profile
• impairment risk

2) ASC 805 PPA: what gets valued?

Typical PPA categories:

Tangible assets

• cash, receivables, inventory, fixed assets
• leases and right-of-use assets (where relevant)

Identifiable intangible assets (common)

• Customer relationships
• Trade name / brand
• Developed technology / software
• Non-compete agreements
• Backlog / order book
• In-place workforce (sometimes addressed as contributory asset rather than separately recognised)

Liabilities

• deferred revenue (often adjusted from book value)
• contingent liabilities
• debt at fair value (and embedded features)

Goodwill (residual)

Goodwill reflects:

• synergies
• assembled workforce value (if not separately recognised)
• expected growth beyond identifiable assets

3) Step-by-step PPA workflow (audit-ready)

Step 1: Gather deal facts

• signed SPA, consideration breakdown (cash/stock/earnouts)
• closing balance sheet
• management projections and integration plan

Step 2: Identify and classify intangibles

• list assets, determine separability and contractual rights
• map each asset to a valuation approach

Step 3: Select valuation methods (by asset type)

Common approaches:

• Relief-from-Royalty (brand, trade name, technology)
• MPEEM (customer relationships)
• With-and-Without (non-compete)
• Cost approach (certain technologies, assembled elements—when appropriate)

Step 4: Build assumptions

• revenue segmentation
• attrition rates
• royalty rate benchmarking logic
• contributory asset charges (CAC)
• discount rates specific to asset risk

Step 5: Reconcile & finalise

• verify allocation ties to consideration
• compute goodwill
• prepare sensitivities and documentation for audit support

4) Use cases

Use Case 1: US SaaS acquisition with deferred revenue

ASC 805 often requires fair value adjustment of deferred revenue, which can reduce reported post-close revenue—this needs clear explanation and modelling support.

Use Case 2: UK buyer reporting under IFRS, US subsidiary under US GAAP

Dual reporting means consistent assumptions but standard-specific disclosures and impairment frameworks.

Use Case 3: AU consolidator with frequent bolt-ons

Repeatable PPA process becomes crucial: consistent templates, assumption governance, and audit packs.

5) PPA checklist (what finance teams should prepare)

Deal package

• purchase agreement and consideration schedule
• earnout terms and valuation basis
• working capital adjustment mechanics

Financial data

• last 3–5 years financials
• segment revenue by product/customer
• churn/retention metrics (for customer intangibles)

Operating data

• pipeline/backlog with conversion history
• tech roadmap and replacement cycle
• marketing CAC and customer LTV

Valuation inputs

• comparable company/transaction data
• market royalty rate support
• discount rate build-up with defensible components

FAQs

A strong ASC 805 PPA is part compliance, part credibility. Done well, it reduces audit surprises and improves reporting quality. If you need audit-ready PPA support, Synpact provides end-to-end valuation documentation aligned with global standards.