IFRS 3 AND PURCHASE PRICE ALLOCATION

A PPA is always necessary when a purchase price was paid for a bundle of assets and liabilities. Under International Accounting Standards Board (IASB) in IFRS 3 the purchase price in a business combination is required to be allocated at the time of the acquisition to all identifiable assets and liabilities that meet the applicable recognition criteria.

WHAT IS THE PURPOSE OF THE PPA?
The main goal behind purchase price allocation (PPA) is to bring greater transparency to the acquisition process, to identify and value the assets being acquired and to arrive at the net residual amount which will be attributed to goodwill.

WHAT IS THE PROCESS?
The PPA creates a complex challenge for the acquiring company. The process involves determining the purchase price, identifying hidden reserves and charges reflected in the assets and liabilities shown in the acquiree’s balance sheet, as well as identifying and valuing intangible assets and liabilities previously not recognized in the balance sheet.
The fair value approach is required, whereas fair value is defined as the amount at which an asset could be exchanged or a liability settled, between knowledgeable, willing parties in an arm’s length transaction.
In the acquisition process, intangible assets such as customer relationships, brands, patents, technologies and the like constitute the central value drivers of the acquired  company, and are therefore of most interest to the acquiring company.
The fair value of these intangible assets must then be determined in accordance with prescribed valuation approaches and methods.

WHAT IS THE TREATMENT OF INTANGIBLE ASSETS?
Under IFRS 3 and SFAS 141/142, all intangible assets must be recorded separately if they meet the recognition criteria of IAS 38 and SFAS 141/142, respectively. This means that the intangible asset must first meet the legal or contractual separation criteria.
Intangible assets are often hard to separate due to their interconnectivity. In individual cases, for example, it may be difficult to differentiate between a product brand, the technology used and the customer base.
The interdependencies must be considered not only in the identification process under the restrictions of applicableaccounting recognition criteria, but also from an economic perspective.

S-CUBE YOUR PREFERRED APPRAISER
With years of extensive experience S-cube's team of professional advisors has performed hundreds of valuations for both private and public companies. Our advisors have gained the trust and confidence of the "big four" accounting firms in Israel and the appreciation of hundreds of satisfied customers.
We offer the ultimate combination of professionalism together with experience and personalized service.