purchase price allocation

Definition

The process of distributing an acquisition's cost across the target company's assets and liabilities at fair value, usually creating a giant plug number called goodwill for the amount that can't be justified. It's accounting's way of making an overpriced acquisition look systematic.

Example Usage

The purchase price allocation assigned $50 million to identifiable assets and $450 million to goodwill, revealing what everyone suspected about the valuation.

Origin

Required accounting treatment under business combination standards

Fun Fact

Purchase price allocation has spawned an entire consulting industry of valuation experts who use complex models to justify whatever allocation the acquirer wants.

Source: M&A accounting and business combination standards

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