What is purchase price allocation (PPA)?
Learn how purchase price allocation splits a business purchase into assets, liabilities and goodwill in Ireland.
Published Wednesday 30 September 2026
Table of contents
Key takeaways
- Purchase price allocation (PPA) splits the price you pay for a business across its identifiable assets, liabilities and goodwill at fair value. It turns one lump sum into clear lines in your accounts.
- Most Irish private companies apply Financial Reporting Standard 102 (FRS 102) Section 19, while listed groups use International Financial Reporting Standards (IFRS). Both frameworks give you up to 12 months to finalise the figures.
- Goodwill is amortised over its useful life under FRS 102 and tested for impairment every year under IFRS. Your framework shapes your reported profit for years after the deal.
- How you split the price affects Irish tax, including capital allowances and stamp duty. Talk to your accountant before you sign so the allocation works for your business.
What is purchase price allocation?
Purchase price allocation (PPA) is the process of splitting the price you pay for a business across its assets and liabilities. Anything left over is goodwill.
If you’re buying a business, PPA is one of the first accounting jobs after completion. Think of it like buying a hamper at one price: PPA prices each item inside, so your balance sheet shows what you actually own.
Each item is recorded at fair value on the acquisition date. Fair value is the price a willing buyer and seller would agree on the open market. It often differs from the figure in the seller’s books.
Why purchase price allocation matters
PPA gives you a detailed record of your purchase and shapes your tax position for years after the deal. Here’s where it makes a difference.
Financial clarity
PPA shows you exactly where your money went. Instead of one large payment, you see the fair value of each asset and liability, plus how much you paid above them.
That helps you judge whether the price was fair and which parts of the business carry the most value.
Tax relief and capital allowances
The way you split the price affects the tax relief you can claim. In an asset purchase, a company can claim capital allowances of 12.5% a year over eight years on plant and machinery.
Accounting depreciation generally isn’t deductible for tax in Ireland, so capital allowances are how you get relief for the cost of equipment and vehicles.
Strategic planning
Knowing the fair value of each asset helps you plan upgrades and budgets. If the valuation reveals the delivery van is near the end of its useful life, you can set aside cash for a replacement early.
Regulatory compliance
Your company’s financial statements follow either FRS 102 or IFRS, and both require PPA whenever you acquire a business. A well-documented PPA keeps your accounts audit-ready and lowers the chance of restating them later.
Accounting standards for purchase price allocation in Ireland
Irish businesses apply PPA under one of two frameworks: FRS 102 Section 19 or IFRS 3. The one you use depends on your company, so check with your accountant.
FRS 102 Section 19
Most Irish private companies, including small companies using the Section 1A regime, apply FRS 102. Section 19 sets out the rules for business combinations and goodwill.
The Financial Reporting Council (FRC) issues FRS 102 for the UK and the Republic of Ireland. According to CPA Ireland guidance, EU rules require listed groups to use IFRS for consolidated accounts, while the Companies Act 2014 lets non-listed companies choose.
IFRS 3
IFRS 3 is the international standard for business combinations, used by listed groups and any company that opts in. Under the IFRS 3 standard, the buyer recognises identifiable assets and liabilities at fair value on the acquisition date, separately from goodwill.
The measurement period
Both frameworks give you up to 12 months after the acquisition date to finalise provisional values. IFRS 3 caps this measurement period at one year, and FRS 102 allows fair value adjustments during the 12 months after acquisition.
Use this window to firm up valuations as better information arrives, such as a final property valuation or a settled warranty claim.
Goodwill amortisation and impairment
Goodwill treatment is the biggest difference between the two frameworks. ICAEW’s FRS 102 guidance confirms goodwill must be amortised, over no more than 10 years if its useful life can’t be reliably estimated.
A CPA Ireland comparison notes that under IFRS, goodwill isn’t amortised but is reviewed for impairment every year. Under FRS 102, the yearly amortisation charge reduces your reported profit, so build it into your forecasts.
FRS 102 changes from 2026
Amendments from the FRC’s Periodic Review 2024 apply to accounting periods beginning on or after 1 January 2026, according to KPMG Ireland. They apply to Irish companies using FRS 102.
Section 19 now includes guidance on identifying the acquirer, similar to IFRS 3, plus guidance on contingent payments linked to employment. The core rules on goodwill amortisation and negative goodwill stay the same.
Key components of purchase price allocation
A PPA breaks the deal into building blocks, each recorded at fair value. Here’s what your accountant will look at.
Tangible assets
Tangible assets are the physical items you acquire, such as property, vehicles, equipment, stock and cash. Each one is revalued, so a van written down to zero in the seller’s books may still have a fair value.
Identifiable intangible assets
Identifiable intangible assets are non-physical assets you can value on their own. Generally, an intangible is recognised separately from goodwill when it’s separable or arises from contractual or legal rights.
Common intangibles in a small business acquisition include:
- customer contracts and customer relationships
- brand names, trademarks and website domains
- non-compete agreements with the seller
- software and databases the business owns
- licences, permits and patents
Separable means you could sell or license the asset apart from the business. A customer list you could sell is separable, while the owner’s personal reputation stays within goodwill.
Liabilities and deferred tax
Liabilities include loans, supplier balances, warranty obligations and any other amounts the business owes at completion. Fair value adjustments can also create deferred tax, because an asset’s new accounting value may differ from its value for tax purposes.
Contingent consideration and transaction costs
Contingent consideration is an extra payment that depends on future results, such as an earn-out tied to profit targets. It’s usually included in the purchase price at an estimated value on the acquisition date.
Transaction costs, such as legal and valuation fees, are treated differently: IFRS 3 expenses them, while FRS 102 adds directly attributable costs to the cost of the acquisition. Agree the treatment with your accountant before completion.
Goodwill
Goodwill is the residual: the amount you pay above the fair value of net identifiable assets. It captures value you can’t tie to a single asset, like a loyal local customer base or a skilled team.
How purchase price allocation works
PPA follows three steps, usually led by your accountant with support from a valuation specialist. Each step builds on the one before.
1. Identify and value net identifiable assets
Start by listing every asset and liability the business holds, including intangibles missing from the seller’s balance sheet. Each item gets a fair value, and total assets minus total liabilities gives you the net identifiable assets.
Ask the seller early for deal documents, customer contracts, asset registers and financial projections, because these feed the valuation.
2. Record fair value adjustments
Next, compare each fair value with the seller’s book value and record the difference as an adjustment. Book value is the original cost less accumulated depreciation, so it often lags market value.
For example, a commercial unit carried at €200,000 might be valued at €280,000, giving an upward adjustment of €80,000. These are accounting entries recorded through double-entry bookkeeping; no cash changes hands.
3. Calculate goodwill
Finally, subtract the net identifiable assets from the purchase price; what’s left is goodwill. If you pay €300,000 and net identifiable assets come to €240,000, goodwill is €60,000.
Your accountant can refine these figures during the 12-month measurement period.
Valuation methods used in purchase price allocation
Valuers use three broad approaches to set fair value: market, income and cost. The right one depends on the asset and the evidence available.
The market approach compares an asset with recent sales of similar items. The income approach values the future cash an asset will bring in, while the cost approach asks what it would cost to replace.
For intangibles, Grant Thornton Ireland lists specific methods such as relief from royalty, multi-period excess earnings and cost to recreate. Here’s how each method typically lines up with common assets:
- Market approach for property, vehicles and equipment with an active second-hand market
- Relief from royalty for brands and trademarks, based on the licence fees you avoid by owning them
- Multi-period excess earnings for customer relationships, based on the profit they generate after other asset costs
- Cost to recreate for software and databases the business built itself
Whichever method is used, the valuation needs clear assumptions you can back up. Knowing how to value a business as a whole helps you sense-check the results.
Purchase price allocation example
Here’s how PPA works for a small Irish acquisition. Say you buy a landscaping business for €500,000, and your accountant identifies these tangible assets:
- a workshop valued at €329,000
- a truck valued at €25,000
- a trailer valued at €8,000
- a ride-on mower valued at €3,000
- two smaller mowers valued at €2,000 each
- miscellaneous tools valued at €1,000
That gives total tangible assets of €370,000. The business also holds customer contracts for regular garden maintenance, valued at €40,000 as an identifiable intangible asset.
It owes €20,000 in warranty obligations to existing customers. So net identifiable assets are €370,000 plus €40,000, minus €20,000, which comes to €390,000.
Goodwill is the €500,000 price minus €390,000 of net identifiable assets, which leaves €110,000. That figure reflects the business’s local reputation and trained crew.
Under FRS 102, you then amortise the €110,000 of goodwill over its useful life. If your accountant sets that life at 10 years, you’d charge €11,000 a year to profit and loss.
Share purchase vs asset purchase
How you structure the deal changes what you buy and how Irish tax applies. There are two main options, and each affects PPA differently.
Share purchase
In a share purchase, you buy the company itself, so its assets, liabilities, contracts and tax history come with it. Stamp duty on shares in an Irish company is 1% of the price.
A 7.5% rate can apply instead where the shares get most of their value from Irish non-residential property. The company’s own accounts keep their existing values, so PPA shows up in group accounts if you prepare them.
Capital allowances continue on the company’s existing tax values, so buying shares gives you less room to reshape future tax relief.
Asset purchase
In an asset purchase, you buy selected assets and take on only the liabilities you agree to. This lets you allocate the price across specific assets and claim relief on qualifying ones.
Stamp duty on non-residential property is 7.5%, so the value you allocate to premises affects your stamp duty bill. Revenue treats specified intangible assets as plant and machinery for capital allowances, with relief capped at 80% of relevant trading income.
Goodwill only qualifies to the extent it’s directly attributable to those specified intangibles. Ask your accountant or tax adviser which structure suits your deal.
Common challenges and risks in purchase price allocation
PPA relies on judgement, which brings risks you can plan for. Spotting them early helps you and your accountant build an allocation that stands up to scrutiny.
Watch out for these common issues:
- Subjective valuations, especially for intangibles with no market price
- Missing data, such as out-of-date asset registers or weak financial projections
- Audit adjustments if your auditor challenges the assumptions behind the figures
- Overstated goodwill when intangibles aren’t identified separately
- Impairment charges if the acquired business underperforms
Realistic assumptions and clear records from day one reduce these risks. They also make the 12-month measurement period easier to manage.
Manage your post-acquisition finances with Xero
A clear PPA gives you an accurate starting point for the business you’ve bought. Preparing well now makes year-end and audits smoother.
Xero accounting software keeps your acquired business’s finances in one place. You can record new assets and their depreciation when you manage fixed assets, then run financial reports to see your updated balance sheet.
Your accountant can work in the same books in real time. Sign up today and get one month free with Xero.
FAQs on purchase price allocation
Here are answers to common questions about PPA for Irish businesses.
When is purchase price allocation required?
PPA is required whenever you gain control of a business, whether you buy its shares or its trade and assets. If the assets you buy don’t form a business, you allocate the cost by relative fair value and recognise no goodwill.
Who performs purchase price allocation?
Your accountant usually leads the PPA, often with a valuation specialist for property and intangibles. You can find an experienced professional through the Xero advisor directory.
When is a PPA prepared during a deal?
Some buyers commission a pre-PPA during due diligence, especially in sectors rich in intangibles, then prepare the final PPA after completion. A pre-PPA tells you early how much of the price becomes goodwill and how it could affect future profit.
What happens if the purchase price is less than net assets?
That’s a bargain purchase: under IFRS 3, you recognise an immediate gain in profit or loss after rechecking every value. Under FRS 102, negative goodwill is released to profit or loss gradually as the non-monetary assets acquired are recovered.
How long do you have to finalise a purchase price allocation?
You have up to 12 months from the acquisition date, called the measurement period, under both IFRS 3 and FRS 102. If a year-end falls within that window, you report provisional figures and adjust them once the valuations are final.
Is goodwill amortised in Ireland?
Yes, if your company uses FRS 102, including the Section 1A small companies regime: amortisation lowers your reported profit each year without affecting cash. Companies reporting under IFRS test goodwill for impairment every year instead.
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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.