Audit-ready purchase price allocation valuations under AASB 3.

A purchase price allocation (PPA) valuation allocates the price paid for an acquired business across the identifiable assets acquired and liabilities assumed at fair value, including intangibles such as customer relationships, brands, software and contracts, with the residual recognised as goodwill, as AASB 3 requires.

When you need a PPA: and who will ask for it

If you have acquired a business, by buying its assets or its shares, and the transaction is a business combination under AASB 3, the purchase price must be allocated across the identifiable assets acquired and liabilities assumed at their acquisition-date fair values. Whatever cannot be attributed to an identifiable asset is recognised as goodwill. The standard allows a measurement period of up to twelve months, but the practical deadline is earlier: your auditor will want the allocation supported before signing off the first financial statements after completion. Mid-market acquirers often discover the requirement at year-end, with the audit already underway. The PPA is not optional and it is not a journal the bookkeeper can post: the intangible values must be independently supportable, because the split between amortising intangibles and non-amortising goodwill directly affects reported profit for years after the deal.

What counts as identifiable: and what falls to goodwill

AASB 3 recognises an intangible asset separately from goodwill if it is separable, capable of being sold, licensed or transferred on its own, or arises from contractual or legal rights. In practice the recurring categories are customer relationships and customer contracts, brand and trade names, developed software and technology, licences and permits, favourable supply agreements, order backlog and non-compete arrangements. An assembled workforce is not identifiable and remains within goodwill, though it is still valued because it feeds the contributory asset charges. The distinction matters commercially: identifiable intangibles with finite useful lives are amortised through profit and loss, while goodwill is not amortised but tested annually for impairment. An allocation that pushes too much value to goodwill flatters early earnings but concentrates impairment risk; one that over-allocates to short-life intangibles depresses reported profit. The allocation has to be what the evidence supports: not what the earnings profile would prefer.

How each intangible is valued

Method selection is asset-by-asset. Customer relationships are usually valued under the multi-period excess earnings method (MPEEM), which isolates the earnings attributable to the customer base after charging for the contribution of every other asset, working capital, fixed assets, workforce, brand, through contributory asset charges. Brands and developed software are typically valued under relief-from-royalty, using an arm's-length royalty rate the business would otherwise pay to license the asset. Non-compete arrangements are valued with-and-without: the difference in cash flows between a scenario where the covenant exists and one where it does not, weighted for the likelihood and impact of competition. Only one asset should carry the excess-earnings method, the primary income-generating asset, and the contributory asset charges must be internally consistent across the model. The report documents why each method was selected for each asset, and why the alternatives were set aside.

What your auditor will tie out

• ·Asset-level discount rates that sit sensibly around the overall deal rate: riskier intangibles above the WACC, working capital and fixed assets below it
• ·An IRR/WACC/WARA reconciliation: the internal rate of return implied by the price paid, the weighted average cost of capital and the weighted average return on assets must reconcile, or the differences must be explained
• ·Royalty rates and customer attrition assumptions supported by observable evidence, not asserted
• ·Contributory asset charges consistent with the fair values concluded for each contributing asset
• ·Useful life conclusions for each intangible, with documented reasoning
• ·The tax amortisation benefit applied consistently with the valuation premise
• ·Complete documentation, basis of value, scope, valuation date, assumptions and limitations, with an independence statement and signed conclusion

One set of numbers, two jobs: the tax side

If the acquirer brings the target into a tax consolidated group, the tax cost setting process allocates the allocable cost amount (ACA) across the target's reset cost base assets in proportion to their market values: and those market values are, in substance, the same fair values the PPA concludes. Running the accounting allocation and the tax allocation off inconsistent numbers invites questions from the auditor and the ATO alike. We prepare the fair value evidence once, documented so it can serve both processes, and your tax adviser applies it to the cost setting calculation. Oliver Group prepares the independent valuation only: we are not a registered tax agent and do not provide tax advice; the consolidation workings and any tax positions remain matters for your accountant.

Realistic timelines against audit deadlines

A PPA has more moving parts than a single-entity business valuation, multiple intangibles, a business enterprise value cross-check and the reconciliation work auditors expect, so the honest answer on timing is longer than most acquirers hope and shorter than most fear. A complete deal file at engagement, sale agreement, completion accounts, due diligence reports, customer data, removes weeks of back-and-forth.

Fees: fixed at engagement

Additional entities are $795 each. Fees are fixed at engagement and never contingent on the values concluded. Oliver Group's fees are set by the annual turnover of the business: a Small Business Valuation is $1,495 + GST for turnover under $2 million, a Medium Business Valuation is $2,495 + GST for turnover between $2 million and $10 million, and a Large Business Valuation is $3,495 + GST for turnover over $10 million. Small-business reports are delivered in 2 business days and medium-business reports in 3 business days; the delivery date for a Large Business Valuation is agreed before commencement. Delivery time starts once payment and all required information have been received. Retrospective valuation dates are +$495 each and additional entities are +$795 each. The fee is fixed in writing before work begins and never depends on the concluded value.