Gaapio Logo - AI-Powered Technical Accounting Platform

Purchase Accounting (ASC 805)

What Is Purchase Price Allocation?

Purchase price allocation (PPA) is the process of assigning the total consideration paid in an acquisition to the identifiable assets acquired and liabilities assumed, at fair value, with any excess recorded as goodwill — or, in the rarer reverse case, a bargain purchase gain recognized in earnings.

PPA is required under ASC 805 for any transaction that qualifies as a business combination, and it sets the acquirer's opening balance sheet: which assets are recognized (including intangibles not previously on the target's books), at what value, and over what useful life they are subsequently amortized or tested for impairment.

Goodwill itself is not amortized for public companies — it is tested for impairment, at least annually. Private companies may elect the accounting alternative to amortize goodwill over ten years or less and use a simplified impairment trigger.

When the fair value of net identifiable assets exceeds the consideration paid, ASC 805 requires the acquirer to first reassess whether it has correctly identified and measured everything, and then recognize any remaining excess as a bargain purchase gain in earnings on the acquisition date.

Frequently asked questions

Goodwill is the excess of the consideration transferred over the fair value of the net identifiable assets acquired. It represents value that cannot be attributed to a specific identifiable asset — assembled workforce, expected synergies, and going-concern value. For public companies it is not amortized; it is tested for impairment at least annually.

See this on your own facts

Bring a real purchase accounting question. We'll walk the analysis with you and show you the citation trail.

Request a DemoTalk to a CPA

Related

References: FASB ASC 805, Business Combinations; ASC 350, Intangibles — Goodwill and Other. This page is general information, not accounting advice for a specific entity.

Written and maintained by the Gaapio team of CPAs. Last reviewed August 2026.