# Purchase accounting and purchase price allocation under ASC 805 and IFRS 3

Canonical: https://finbryn.com/us/services/technical-accounting-advisory/purchase-accounting-ppa-asc-805-ifrs-3

Finbryn provides purchase accounting under ASC 805 and IFRS 3 for acquirers: a purchase price allocation schedule, opening balance sheet entries and draft disclosures built on fair values from management or its valuation specialist. Checked 2026-10-16 against ASU 2021-08: acquired contract liabilities are measured under ASC 606 as if the acquirer had originated the contracts.

A deal closes on a Friday. By the following quarter-end the acquirer needs an opening balance sheet that shows what it bought, at fair value, and a goodwill number that survives the auditor's questions. That is purchase accounting, and the schedule behind it is the purchase price allocation, or PPA.

Finbryn prepares the allocation schedules, opening balance sheet entries and draft disclosures. Fair values of intangible assets come from management or its independent valuation specialist, and Finbryn issues no valuation opinion. The valuation firm sets the number for customer relationships or technology; we make sure every other line has a source, that the arithmetic ties and that the entries post cleanly into the acquirer's ledger.

Three kinds of buyer tend to need this. A private equity portfolio company has just closed an add-on and must report to the sponsor within weeks. A search-fund or SBA-financed buyer has bought a single business and has no technical accounting staff. Or a strategic buyer has made its first acquisition and the audit committee wants the working papers. In each case the choices that matter most come early: whether the target is a business at all, whether the company can use the private company alternatives, and how to treat the deferred revenue that came with the deal.

After the allocation, goodwill goes into the annual test; see [goodwill and asset impairment](/services/technical-accounting-advisory/impairment-testing-asc-350-360-ias-36). For the consolidation entries, the [consolidation service](/services/month-end-close-reporting/consolidations) covers elimination and entity reporting. Deal-side work before closing sits with [M&A due diligence support](/services/virtual-cfo-advisory/m-and-a-due-diligence-support), and the first months after close with [post-acquisition transition support](/services/virtual-cfo-advisory/post-acquisition-transition-search-fund-sba-buyers).

What you get: Consideration transferred schedule, including contingent consideration; Purchase price allocation by asset and liability class; Opening balance sheet and consolidation entries; Measurement period tracker for provisional amounts; Draft business combination footnote and pro forma inputs

Software we work in: Microsoft Excel, QuickBooks Online, NetSuite, Sage Intacct

## What does the acquisition method require?

ASC 805 and IFRS 3 share the same core design. The acquirer identifies itself, fixes the acquisition date, recognizes the identifiable assets acquired and liabilities assumed at their acquisition-date fair values, and measures goodwill as the residual. The [IFRS Foundation's summary of IFRS 3](https://www.ifrs.org/issued-standards/list-of-standards/ifrs-3-business-combinations/) says the same: allocate the cost to identifiable assets and liabilities on the basis of their fair values, allocate the rest to goodwill, and recognize any excess of net assets over consideration as a bargain purchase in profit or loss.

Three rules from the FASB's original Statement 141(R) still catch buyers out:

- **Contingent consideration** is recognized at fair value on the acquisition date, so an earn-out belongs on the opening balance sheet.
- **Acquisition-related costs**, such as legal and diligence fees, are recognized separately from the acquisition and don't go into goodwill.
- **A bargain purchase**, where net assets exceed consideration, is a gain in earnings after the acquirer re-checks that it identified and measured everything.

Goodwill is therefore consideration transferred, plus any noncontrolling interest and previously held interest, less the fair value of identifiable net assets.

## Is it a business or an asset purchase?

The acquisition method applies only when the purchased set of assets and activities is a business. [ASU 2017-01](https://storage.fasb.org/ASU%202017-01.pdf) added a screen under US GAAP: if substantially all of the fair value of the gross assets acquired sits in a single identifiable asset or a group of similar identifiable assets, the set is not a business. If the screen isn't met, the set needs at least an input and a substantive process that together contribute to the ability to create output. The Update took effect for private companies for annual periods beginning after December 15, 2018.

IFRS 3 has an equivalent optional test. The IFRS Foundation's page records that the October 2018 amendment to IFRS 3 narrowed the definition of a business and permits a simplified assessment of whether an acquired set is a group of assets rather than a business.

The distinction changes the accounting. An asset acquisition generally produces no goodwill and allocates its cost to the assets acquired. A business combination records goodwill and recognizes acquisition-related costs separately from the acquisition. Write the conclusion into a short memo before the allocation starts.

## How do you allocate the purchase price?

The allocation runs class by class. For each, someone owns the number and a source document supports it.

| Class | Typical source | Who sets the number |
| --- | --- | --- |
| Working capital: receivables, inventory, payables | Closing balance sheet and subledgers | Finbryn schedule, controller sign-off |
| Property and equipment | Fixed asset register, appraisal where material | Management or a specialist |
| Customer relationships, trade names, technology | Forecasts and a valuation model | Valuation specialist |
| Contract liabilities (deferred revenue) | Acquired contracts, measured under ASC 606 | Finbryn schedule |
| Leases | Lease abstracts under ASC 842 | Finbryn schedule |
| Deferred taxes | Tax basis workpapers | Tax preparer |
| Debt and earn-outs | Payoff letters, purchase agreement | Management; earn-out at fair value |
| Goodwill | Residual | Calculated |

The deliverable is a workbook with one tab per class, a summary that ties to the purchase agreement's closing statement, and a note of every open item. Where the valuation specialist's report isn't ready by the first reporting date, the numbers go in as provisional amounts, which the next section covers.

## What can a private company skip?

Two Private Company Council alternatives change how much of the price lands in goodwill.

[ASU 2014-18](https://storage.fasb.org/ASU%202014-18.pdf) lets an eligible private company stop recognizing customer-related intangible assets separately from goodwill unless they are "capable of being sold or licensed independently from the other assets of a business" (the Update's wording), and stop recognizing noncompetition agreements separately. A company that elects it must also adopt the goodwill amortization alternative from ASU 2014-02. That alternative amortizes goodwill straight-line over 10 years, or less if another useful life is more appropriate (ASC 350-20-35-63, reproduced in ASU 2021-03).

The election covers every in-scope transaction after the effective date, so you can't pick it for one deal and drop it for the next. The practical effect is fewer intangibles to value and a smaller valuation fee, set against a straight-line goodwill expense that hits earnings every year. Check how your credit agreement treats amortization in its earnings and net worth tests before electing.

IFRS has no equivalent. A subsidiary that reports to an IFRS parent recognizes customer relationships separately in the group numbers, and the bridge records that difference.

## How long can the numbers stay provisional?

If the accounting is incomplete at the end of the reporting period of the deal, the acquirer reports provisional amounts. Under US GAAP the measurement period ends when the acquirer gets the information it was seeking, and it can't last more than one year from the acquisition date (ASC 805-10-25-14).

[ASU 2015-16](https://storage.fasb.org/ASU%202015-16.pdf) changed how adjustments flow. The acquirer now records an adjustment to a provisional amount in the period in which it is determined, with the income effect, such as extra depreciation or amortization, calculated as if the accounting had been completed on the acquisition date. It presents separately, or discloses, the part of that charge that belongs to earlier periods.

IFRS 3, paragraph 45, goes the other way: the acquirer retrospectively adjusts the provisional amounts, so comparatives change. A US subsidiary reporting to an IFRS parent can therefore carry two different treatments of the same late valuation.

Acquired deferred revenue has its own rule. [ASU 2021-08](https://storage.fasb.org/ASU%202021-08.pdf) requires the acquirer to recognize and measure contract assets and liabilities in accordance with ASC 606 as if it had originated the contracts. It took effect for entities other than public business entities for fiscal years beginning after December 15, 2023.

## Where do ASC 805 and IFRS 3 differ for a US buyer?

The standards agree on more than they differ, and the gaps that remain are specific.

- **Noncontrolling interest.** IFRS 3 lets the acquirer measure each noncontrolling interest at fair value or at its proportionate share of the acquiree's identifiable net assets, transaction by transaction. US GAAP measures it at fair value, so full goodwill is always the result.
- **Measurement period adjustments.** Retrospective under IFRS 3, current period under ASC 805 after ASU 2015-16.
- **Private company alternatives.** Available under US GAAP only.
- **Acquirer in a variable interest entity.** ASU 2025-03 changes how the accounting acquirer is determined when a VIE is acquired and takes effect for all entities for annual periods beginning after December 15, 2026.

For a side-by-side of the whole framework, see the [US GAAP vs IFRS guide](/guides/us-gaap-vs-ifrs-key-differences). The recurring revenue side of an acquired contract book sits with [revenue recognition under ASC 606 and IFRS 15](/services/month-end-close-reporting/revenue-recognition-asc-606-ifrs-15).

## The process

1. **Confirm what you bought**: A short memo on whether the target is a business under the ASU 2017-01 screen, and who the accounting acquirer is.

2. **Collect the closing set**: Purchase agreement, closing statement, the target's trial balance, contracts, leases and any valuation report.

3. **Build the allocation workbook**: One tab per asset and liability class, with the valuation specialist's fair values dropped in as supplied.

4. **Post the opening entries**: Journal entries and consolidation adjustments for the acquirer's ledger, with goodwill as the residual.

5. **Track the measurement period**: A log of provisional amounts and the date each is finalized, no later than one year after closing.

6. **Draft the footnote**: Business combination disclosure and pro forma inputs, for the controller to edit.

## Common problems we fix

| The problem | How we fix it |
| --- | --- |
| The valuation report arrives after the first reporting date | Provisional amounts go in with a documented basis, and the tracker shows what changes when the report lands. |
| The deferred revenue on the opening balance sheet is a fraction of what the seller reported | Each acquired contract is re-measured under ASC 606 as ASU 2021-08 requires, and the difference is explained line by line. |
| Legal and diligence fees were capitalized into goodwill | Acquisition-related costs are separated and expensed, with the entry and the invoice list that supports it. |
| The earn-out sits in a side letter and nobody booked it | The purchase agreement is read for contingent consideration, and its fair value goes on the opening balance sheet. |

## By the numbers

| Figure | What it means | Source |
| --- | --- | --- |
| 1 year | Longest measurement period for provisional acquisition amounts under ASC 805-10-25-14 | [storage.fasb.org/ASU%202015-16.pdf](https://storage.fasb.org/ASU%202015-16.pdf) (2015-09-01) |
| 10 years | Straight-line goodwill amortization period, or less, under the private company alternative in ASC 350-20-35-63 | [storage.fasb.org/ASU%202021-03.pdf](https://storage.fasb.org/ASU%202021-03.pdf) (2021-03-01) |

## Glossary

- **Purchase price allocation**: The schedule that assigns the consideration transferred to each identifiable asset acquired and liability assumed, with goodwill as the remainder.

- **Acquisition date**: The date the acquirer obtains control of the target, which fixes the fair values used in the allocation.

- **Measurement period**: The window, ending no later than one year after the acquisition date, in which provisional amounts can be adjusted for facts that existed at that date.

- **Contingent consideration**: An obligation to pay the seller more if specified future events occur, such as an earn-out.

- **Bargain purchase**: A deal in which the fair value of identifiable net assets exceeds the consideration transferred plus any noncontrolling interest.

- **Reporting unit**: The level at which goodwill is tested for impairment under ASC 350, an operating segment or one level below it.

## Frequently asked questions: Purchase accounting and purchase price allocation under ASC 805 and IFRS 3

**Q: How do you account for an acquisition under ASC 805?**

A: Identify the acquirer and acquisition date, recognize identifiable assets and liabilities at fair value, measure noncontrolling interest and contingent consideration, expense acquisition costs and record goodwill as the residual. Statement 141(R) set these rules, now ASC 805; ASU 2021-08 (effective for private companies from fiscal years beginning after December 15, 2023) covers acquired contract liabilities.

**Q: What is a purchase price allocation and who prepares it?**

A: It is the schedule that spreads the consideration across the assets and liabilities acquired. Management owns it. A valuation specialist usually supplies the fair values of intangibles, and Finbryn prepares the schedule, entries and draft disclosures around those inputs. Finbryn issues no valuation opinion. Checked 2026-10-16 against IFRS 3 and ASC 805.

**Q: Can I skip recognizing customer relationships as a private company?**

A: Possibly. ASU 2014-18 lets an eligible private company leave customer-related intangibles inside goodwill unless they are "capable of being sold or licensed independently" (ASU 2014-18 wording), and noncompetes too. You must also adopt goodwill amortization over 10 years or less, and the election covers every later in-scope deal. Ask your auditor and lender before electing.

**Q: How long do I have to finalize the purchase price allocation?**

A: No more than one year from the acquisition date under ASC 805-10-25-14 and IFRS 3. A deal closed on 2026-03-31 has until 2027-03-31 at the latest, and sooner if the information arrives. Under US GAAP adjustments post in the period they are determined (ASU 2015-16); under IFRS 3 they restate comparatives.

**Q: Is the acquisition of a small company always a business combination?**

A: No. If substantially all of the fair value of the gross assets is in one asset or a group of similar assets, the ASU 2017-01 screen says it isn't a business and the deal is an asset acquisition without goodwill. The IASB's October 2018 amendment gives IFRS 3 users a similar optional test.

**Q: Who values the intangible assets?**

A: Management is responsible for the fair values, usually with an independent valuation specialist whose report the auditor will read. Finbryn does not supply the valuation. Engage the specialist early: a late report leaves every intangible provisional, and the measurement period ends no later than one year after the acquisition date (ASC 805-10-25-14).

Related services:
- [Goodwill and long-lived asset impairment testing under ASC 350, ASC 360 and IAS 36](https://finbryn.com/us/services/technical-accounting-advisory/impairment-testing-asc-350-360-ias-36)
- [Accounting position papers and technical memos](https://finbryn.com/us/services/technical-accounting-advisory/technical-accounting-memos-position-papers)
- [Consolidations](https://finbryn.com/us/services/month-end-close-reporting/consolidations)
- [Revenue recognition (ASC 606 / IFRS 15)](https://finbryn.com/us/services/month-end-close-reporting/revenue-recognition-asc-606-ifrs-15)
- [M&A due diligence support](https://finbryn.com/us/services/virtual-cfo-advisory/m-and-a-due-diligence-support)
- [Post-acquisition financial transition for search fund and SBA buyers](https://finbryn.com/us/services/virtual-cfo-advisory/post-acquisition-transition-search-fund-sba-buyers)

Industries:
- [Professional services](https://finbryn.com/us/industries/professional-services)
- [Manufacturing](https://finbryn.com/us/industries/manufacturing)

Related guides:
- [US GAAP vs IFRS: Key Differences for US Companies](https://finbryn.com/us/guides/us-gaap-vs-ifrs-key-differences)

## Sources

1. [IFRS Foundation, IFRS 3 Business Combinations](https://www.ifrs.org/issued-standards/list-of-standards/ifrs-3-business-combinations/) (2026-10-16)
2. [FASB, ASU 2021-08: Accounting for Contract Assets and Contract Liabilities from Contracts with Customers](https://storage.fasb.org/ASU%202021-08.pdf) (2026-10-16)
3. [FASB, ASU 2014-18: Accounting for Identifiable Intangible Assets in a Business Combination](https://storage.fasb.org/ASU%202014-18.pdf) (2026-10-16)
4. [FASB, ASU 2015-16: Simplifying the Accounting for Measurement-Period Adjustments](https://storage.fasb.org/ASU%202015-16.pdf) (2026-10-16)
5. [FASB, ASU 2017-01: Clarifying the Definition of a Business](https://storage.fasb.org/ASU%202017-01.pdf) (2026-10-16)
6. [FASB, ASU 2021-03: Accounting Alternative for Evaluating Triggering Events (text of ASC 350-20-35-62 onward)](https://storage.fasb.org/ASU%202021-03.pdf) (2026-10-16)
7. [FASB, ASU 2025-03: Determining the Accounting Acquirer in the Acquisition of a Variable Interest Entity](https://storage.fasb.org/ASU%202025-03.pdf) (2026-10-16)
8. [FASB Accounting Standards Codification, Topic 805 Business Combinations](https://asc.fasb.org/805/tableOfContent) (2026-10-16)

Reviewed October 2026

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