Purchase price allocation (PPA)
Learn how purchase price allocation splits a business’s price into assets, liabilities and goodwill.
Published Wednesday 30 September 2026
Table of contents
Key takeaways
- Purchase price allocation (PPA) splits the price you pay for a business across its assets, liabilities and goodwill at fair value
- Indonesian accounting standards require PPA when you gain control of a business, and your standard decides whether goodwill is amortised or tested for impairment
- The way you split the price shapes your tax position, including goodwill amortisation for tax and duties on land and buildings
- A licensed public appraiser and an accountant can help you value each asset and settle the allocation within the measurement period
What is purchase price allocation?
Purchase price allocation (PPA) splits the total price you pay for a business across its individual assets and liabilities at fair value. Any amount left over is recorded as goodwill.
Say you buy a neighbourhood café. The price covers the espresso machines, the furniture, the recipes and the loyal morning crowd, and PPA gives each of those a value.
If you’re planning to buy a business, PPA is one of the first accounting jobs after the deal closes. The result flows onto your balance sheet, with a line for each asset you now own and its value.
Why purchase price allocation matters
PPA shapes your books and your tax bill for years after the purchase. Here’s what a careful allocation gives you.
Financial clarity
PPA shows the fair value of each asset and liability you took on. You can see how much of the price went on physical assets and how much was a premium for the business’s reputation.
Tax deductions and amortisation
The split affects the deductions you can claim. Equipment and vehicles are depreciated over their useful lives, so a higher value on those assets means larger deductions over time.
Goodwill (muhibah) also counts. Article 11A of the Income Tax Law lets you amortise goodwill and other intangibles lasting over one year. The law sets useful-life groups of four, eight, 16 or 20 years.
Strategic planning
Knowing what each asset is worth helps you plan upgrades and budget for replacements. If the valuation shows an oven is near the end of its useful life, you can set money aside to replace it early.
Regulatory compliance
Indonesia’s financial accounting standards (Standar Akuntansi Keuangan, or SAK) set the rules for recording a business you buy, as the accounting standards section below explains. Getting it right keeps your financial statements ready for audit and lowers the risk of restating them later.
When purchase price allocation is required
PPA applies whenever a deal gives you control of a business, whatever its size. Common triggers for a small business owner include:
- buying most of the shares in a PT (Perseroan Terbatas), giving you control of the company
- buying a business’s assets and operations as a going concern, such as a café with its staff and supplier contracts
- merging your business with another one
- buying extra shares in a business you part-own, taking your stake to a controlling interest
How purchase price allocation works
Your accountant and a professional valuer usually lead the process. It has three steps.
1. Identify and value net identifiable assets
Start by listing every asset and liability the business holds. That includes tangible items like equipment and stock, plus intangibles like trademarks and customer lists.
Each item then gets a fair value: the price it would fetch in an orderly sale between willing parties. In Indonesia, you can hire a Penilai Publik (public appraiser) who works through a Kantor Jasa Penilai Publik (KJPP) licensed by the Ministry of Finance.
Total assets minus total liabilities gives you the net identifiable assets.
2. Record write-ups or write-downs
Fair values often differ from the amounts on the seller’s books. A write-up raises an asset to its fair value, and a write-down lowers it.
Say the seller’s books carry the ovens at Rp400 million, but the appraiser values them at Rp550 million. You’d record a write-up of Rp150 million, which is an accounting entry with no cash involved.
3. Calculate goodwill
Subtract the net identifiable assets from the price you paid. The remainder is goodwill: the premium you paid for things like reputation and loyal customers.
Key components of purchase price allocation
A PPA breaks the deal into four parts. Knowing each one shows you where your money went.
Net identifiable assets
These are everything the business owns minus everything it owes, such as cash, receivables, stock, equipment and debts. Only items you can identify and measure separately count.
Fair value adjustments
These adjustments bring the seller’s book values into line with current market values. An asset’s tax value can differ from its new fair value, so the adjustments can also create deferred tax assets or liabilities.
Intangible assets
Intangible assets have value without a physical form. In a small business deal, they might include a trade name, recipes, customer relationships or a non-compete agreement, each valued separately.
Goodwill
Goodwill is what’s left after you’ve allocated the price to every identifiable asset and liability. A very large goodwill figure can mean you paid more than the business is worth, which raises the risk of a write-down later.
Purchase price allocation example
A worked example shows how the numbers fit together. Before you make an offer, it helps to estimate what the business is worth.
Say you buy a bakery café for Rp5 billion. It trades from leased premises, and the appraiser finds no separately identifiable intangible assets.
The appraiser values the tangible assets as:
- ovens and kitchen equipment worth Rp1.5 billion
- café fit-out and furniture worth Rp1.1 billion
- two delivery vans worth Rp600 million
- stock of ingredients and packaging worth Rp300 million
That’s Rp3.5 billion in tangible assets. The business’s only liability is Rp300 million in unpaid supplier invoices.
Net identifiable assets are Rp3.5 billion minus Rp300 million, which is Rp3.2 billion. Goodwill is Rp5 billion minus Rp3.2 billion, leaving Rp1.8 billion.
The Rp1.8 billion of goodwill reflects the bakery’s reputation and its regular customers. Each figure goes onto your balance sheet from the acquisition date.
Share purchase vs asset purchase
The way you structure the deal changes the tax bill for both you and the seller. There are two main structures to compare.
Share purchase
In a share purchase, you buy the shares of a PT and take over the whole company, including everything it owns and owes. You still complete a PPA to record the company’s assets and liabilities at fair value in your consolidated accounts.
For a non-listed PT, the seller’s gain on the shares is taxed as ordinary income at general rates. For a corporate seller, that’s generally the 22% corporate income tax rate. The 0.1% final rate applies to shares sold on the stock exchange, so it doesn’t cover a private PT.
According to the tax office, the full 22% rate applies only to companies with turnover above Rp50 billion, so smaller companies may pay less. Get tax advice on your specific deal before you agree a price.
Asset purchase
In an asset purchase, you choose the assets you want and the liabilities you’ll take on. The tax cost depends on what’s in the deal.
If land or buildings are included, the seller pays 2.5% final income tax on the gross transfer value. You pay land and building acquisition duty (Bea Perolehan Hak atas Tanah dan Bangunan, or BPHTB) of up to 5%.
Equipment and other non-luxury goods may attract value added tax (Pajak Pertambahan Nilai, or PPN). The nominal rate is 12%, but the effective PPN rate for non-luxury goods is 11%.
Agreeing the allocation in your sale agreement
The split affects tax for both sides, so agree it with the seller and write it into the sale and purchase agreement before you sign. A higher value on land and buildings, for example, raises the seller’s final tax and your BPHTB.
Your accounts still need fair values, so keep the agreed split close to the appraisal. An accountant or bookkeeper near you can check the numbers before you commit.
Accounting standards for purchase price allocation in Indonesia
Indonesia has more than one accounting framework, and the one your business uses decides how you treat goodwill after the deal. Your accountant can confirm which applies to you.
PSAK 103 and PSAK 236
Companies reporting under full Indonesian standards (Pernyataan Standar Akuntansi Keuangan, or PSAK) follow PSAK 103 (Kombinasi Bisnis, formerly PSAK 22). It took that number when the Indonesian Institute of Accountants (IAI) renumbered its standards from 1 January 2024.
PSAK 103 follows the acquisition method set out in IFRS 3 Business Combinations, so you measure identifiable assets and liabilities at fair value. Goodwill then stays on the balance sheet, and PSAK 236 requires an impairment test on goodwill every year.
SAK EP for private companies
Private companies without public accountability can use SAK EP (Standar Akuntansi Keuangan Entitas Privat). It took effect on 1 January 2025, replacing SAK ETAP, and it’s based on the IFRS for SMEs Accounting Standard.
Under SAK EP, you amortise goodwill over its useful life. Your accountant estimates that useful life, and each year’s amortisation reduces your reported profit.
The measurement period
Under IFRS 3, which PSAK 103 follows, the measurement period can’t exceed one year from the acquisition date. During that time, you can adjust provisional values as you learn more about facts that existed when you took control.
Plan your valuation work early so the allocation is settled before the window closes.
Simplify your post-acquisition finances with Xero
Once the allocation is done, your focus shifts to running the business you’ve bought. Xero keeps your new assets and liabilities organised in one place.
You can run financial reports that reflect your updated balance sheet and give your accountant real-time access to your books. Good records from day one make your first audit and tax return easier, so set up now and get one month free.
FAQs on purchase price allocation
These answers cover questions that come up once the main PPA work is underway.
What happens if you pay less than the net assets are worth?
This is a bargain purchase. Under PSAK 103, you recheck your valuations first, then record any remaining difference as a gain in profit or loss on the acquisition date.
Is goodwill treated the same way in your books and your tax return?
The two can differ, because Article 11A sets its own tax amortisation periods, separate from PSAK 103 or SAK EP. Your accountant tracks both figures and may record the gap as deferred tax.
What if your business uses SAK EMKM?
SAK EMKM (Standar Akuntansi Keuangan Entitas Mikro, Kecil, dan Menengah) is a simplified framework for micro, small and medium entities. Talk to an accountant before you buy a business, as the deal may call for a fuller standard.
Do you need a PPA if you buy only a brand or customer list?
Buying a group of assets that falls short of a business counts as an asset acquisition. You spread the cost across those assets by their relative fair values, and no goodwill arises.
Related terms
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Disclaimer
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.