The purchase price allocation (or PPA) is the operation that consists in recopying and allocating the assets and liabilities of the absorbed company in the group's consolidated balance sheet. It responds particularly to the IASB's requirements in accordance with IFRS 3 revised ("IFRS 3R) on" business combinations ".
 
According to IFRS 3R, a group taking control of a company / business must allocate the price paid to the various assets and liabilities acquired, including intangible assets even if they were not included in the balance sheet of the target.
 
Goodwill, not amortised under IFRS, corresponds to the part of the unallocated purchase price of an asset or a liability. It must be subject to an impairment test at least once a year in accordance with IAS 36 ("Impairment of Assets").
 
Beyond the accounting issue, the challenges are many for a PPA. Considering the impacts of an acquisition on the PPA as early as possible allow the client to understand and better manage risks :
 
  • Impacts on the income statement for depreciation of assets with a finite life ;
 
  • Impacts on the balance sheet ;
 
  • Future impairment risk on assets and goodwill ;
 
  • Mitigate the risks and future performance of the company by designing CGU.
 
Identification of intangibles and tangibles assets
 
  • NG Finance supports its customers ahead of their acquisition project (PPA impact, risk analysis impairment) and post-acquisition.
  • Post acquisition : we support you on the fundamental issues (Which assets to recognise? Value to be accounted in the consolidated balance sheet, finite or indefinite usefull life and amortisation). The criteria for recognition of an intangible asset as defined by IAS 38 include the identifiable character, and controlled source of future economic benefits (brands, customers relationships, contractual, technological, artistic, etc ...). The price discrepancy must be allocated between the assets of the acquired company. We carry the measurement of the fair value of assets and liabilities already present in the balance sheet and value other identified intangible assets.
  • The problems met during the valuation of intangible assets vary depending on sector.
 
Assets and goodwill valuation
  • Our assessments at fair value are carried out using a multi-criteria approach:
    • Revenue approach (surplus profits, royalties, incremental approach);
    • Market approach (comparable transactions); 
    • Cost approach (cost, replacement cost).
  • The useful life should be assessed on the basis of economic and legal factors. It can be definite or undefinete. The amortization policy applied to an intangible asset depends on the lifetime of the asset.
  • Goodwill is measured as a "residue". In this step, we rationalise the residual goodwill to be allocated to the different CGU and deferred taxes.
Impairment test
 
  • Impairment tests respond to IAS 36 ("Impairment of Assets"). Each year, companies must ensure that the recoverable value of their assets or their CGU exceeds the book value. This is a major issue in terms of financial communications for companies..
  • Our firm operates on the following topics :
    • Establishment of impairment key indicators (internal or external) ;
    • Identification of assets or CGU presenting an impairment loss ;​
    • Realisation of assets impairment tests or CGU presenting an indication of loss index and the estimate of the value in use or the asset's fair value.
Determination of Cash-Generating Units
 
  • Identification of the cash-generating units is a real issue and prepares impairment tests of the assets and goodwill. CGU are usually determined according to the business segments but not only.