Purchase Price Allocation (PPA) is the process in which fair and new values are assigned to all assets, as well as liabilities, based on the paid price of an acquired business entity following a merger or an acquisition. The need for this process stems from the fact that the book values of many companies are considered to be less than market values.
PPA aims at allocating new accurate values to arrive at a net residual value that is eventually attributed to goodwill, which is subject to annual impairment tests rather than amortization as in the case of other intangible assets.