⬤ Purchase Price Allocation
Purchase Price Allocation Services for US Businesses
You closed the deal – now the accounting begins. CountSure prepares defensible, audit-ready purchase price allocations on both the book (ASC 805) and tax (§1060, Form 8594) side.
When your business acquires another, the price you paid doesn’t simply land on the balance sheet as one number. US rules require you to break that price apart and assign it to everything you bought: the equipment, the customer relationships, the brand, the technology, and whatever value is left over as goodwill. That exercise is a purchase price allocation, and getting it right shapes your financial statements and your tax bill for years. At CountSure, we prepare defensible purchase price allocations for US startups and established businesses – on both the accounting and the tax side. It pairs naturally with our intangible asset valuation work, since the intangibles are usually where a PPA gets hard.
The short answer: A purchase price allocation (PPA) is the process of assigning the total purchase price of an acquired business to the individual assets acquired and liabilities assumed, each measured at fair value, with any remaining amount recorded as goodwill. US acquirers face two PPAs: a financial-reporting allocation under ASC 805 (with fair value under ASC 820) and a tax allocation under IRC §1060, reported on Form 8594. A credible PPA values each asset by a recognised method, documents the assumptions, and produces a report that survives audit and IRS scrutiny. See our broader business valuation services.
2
7
12 mo
ASC 805 measurement period to finalise
⬤ At a Glance
Key Takeaways
- A PPA assigns the purchase price of an acquired business across the assets acquired and liabilities assumed at fair value; the leftover is goodwill.
- There are two distinct PPAs: the financial-reporting allocation (ASC 805 / ASC 820) and the tax allocation (IRC §1060, Form 8594). They often differ.
- The tax PPA uses a residual method - consideration flows through seven asset classes in order, with goodwill last.
- Buyer and seller must file consistent Form 8594 allocations; a mismatch is an IRS red flag.
- Under ASC 805 you have up to 12 months (the measurement period) to finalise the book allocation.
- Under-identifying intangibles inflates goodwill and raises your future ASC 350 impairment exposure - accuracy up front protects earnings later.
What Is a Purchase Price Allocation?
When you buy a business in an asset acquisition – or a stock deal treated as an asset purchase – you don’t record a single lump sum. US GAAP and the tax code both require you to identify each asset acquired and liability assumed, measure it at fair value, and record it separately. Think of it as a waterfall: the total consideration pours in at the top, fills each identifiable asset up to its fair value, and whatever cannot be attributed to an identifiable asset settles at the bottom as goodwill.
“Consideration” is more than the cash at closing. It includes assumed liabilities, seller notes, and contingent payments such as earnouts – often measured at present value on the closing date and revisited as they resolve. That full amount is what gets allocated.
The Two PPAs Everyone Confuses: Book vs Tax
Here is where most acquirers – and, frankly, a lot of preparers – go wrong. There isn’t one purchase price allocation; there are two, built for different audiences, under different rules, that don’t have to produce the same numbers.
The financial-reporting PPA lives in your GAAP financial statements. It follows ASC 805, measures fair value under ASC 820, and drives amortization expense and future goodwill impairment testing under ASC 350. The tax PPA lives on Form 8594, follows IRC §1060’s residual method, and determines the buyer’s tax basis, future depreciation and amortization, and the character of the seller’s gain. Treating them as one number – or ignoring the tax side until filing season – is how avoidable cost and audit exposure creep in.
How the Tax Allocation Works: The Seven Classes
For the tax PPA, IRC §1060 prescribes a residual method: total consideration is allocated across seven asset classes in a fixed order, each class taking value up to its fair market value before the next class receives anything. Goodwill sits last and absorbs the residual.
Why the order matters: different classes are taxed and recovered differently. Class V tangible assets can often be depreciated over five to seven years, while Class VI and VII intangibles and goodwill amortise over 15 years under §197. Buyer and seller have opposite incentives – a buyer prefers faster write-offs, a seller prefers capital-gain goodwill – which is exactly why the allocation is negotiated in the deal and why both parties must report it consistently.
Just closed an acquisition and unsure how to split the price?
CountSure handles both the ASC 805 and the §1060 allocation so your books and your Form 8594 tell a consistent, defensible story.
The 12-Month Measurement Period
On the book side, ASC 805 recognises that you rarely have every valuation finalised on the closing date. It allows a measurement period of up to 12 months from the acquisition date to complete the allocation. During that window you may report provisional fair values, but once the valuation work is finished those amounts must be adjusted retrospectively – as if the final numbers had been known at closing. The practical lesson: start the valuation early, because the clock is running and late adjustments ripple through comparative financials.
What Gets Valued and Where Deals Go Wrong
The hard part of almost every PPA is the intangibles. Customer relationships, developed technology, trade names, non-compete agreements, and order backlog each need a defensible fair value, typically via an income, market, or cost method. The single most common – and most expensive – mistake is failing to separately identify these intangibles, which dumps their value into goodwill.
That shortcut feels convenient until the first impairment test. Because goodwill is not amortised but is tested for impairment at least annually under ASC 350, an inflated goodwill balance becomes a standing risk of a future earnings charge. A rigorous allocation – one that captures each identifiable intangible – produces cleaner amortization, a smaller goodwill balance, and far fewer questions from your auditor.
For the mechanics of valuing those assets, see our intangible asset valuation and goodwill impairment / ASC 350 pages.
⬤ Our Deliverables
What CountSure Delivers
A CountSure purchase price allocation is built to be used – by your auditors, your board, and the IRS. Every engagement produces:
Complete Asset Identification
Tangible and intangible assets separated from goodwill, so nothing material hides in the residual.
Fair Value by Method
The appropriate income, market, or cost approach for each asset class, applied consistently with ASC 820.
Dual Book-and-Tax Allocation
An ASC 805 allocation for your financials and an IRC §1060 allocation for Form 8594 - reconciled and consistent.
A Written PPA Report
Conclusions, methodology, and assumptions in a format your auditor can review.
Audit-Ready Workpapers
The schedules and support that withstand auditor, PCAOB, and IRS questions.
Ready to allocate your deal?
Get a book-and-tax PPA that reconciles on purpose – not by luck.
⬤ Why CountSure
Why Choose CountSure
Purchase price allocation sits precisely where accounting, valuation, and tax meet – and few firms handle all three under one roof. CountSure is a US CPA-supervised firm that prepares both the financial-reporting and the tax allocation, so you aren’t stitching together a valuation shop’s report with a separate tax preparer’s Form 8594 and hoping they agree.
Complete Asset Identification
Tangible and intangible assets separated from goodwill, so nothing material hides in the residual.
Fair Value by Method
The appropriate income, market, or cost approach for each asset class, applied consistently with ASC 820.
A Written PPA Report
Conclusions, methodology, and assumptions in a format your auditor can review.
Audit-Ready Workpapers
The schedules and support that withstand auditor, PCAOB, and IRS questions.
Expert's Insights - Parth Shah, Managing Director
(CPA-US, FCA, RV-S&FA, DISA)
Buyers obsess over the book PPA because the auditor is watching, and quietly let the tax allocation get filled in from a schedule stapled to the purchase agreement. That’s backwards. The Form 8594 allocation drives 15 years of amortization and the character of the seller’s gain — it’s real money, and buyer and seller sit on opposite sides of every line. When the two filings don’t match, the IRS computers notice, and both parties inherit an audit. My rule is simple: model the tax allocation before the letter of intent is signed, not after closing, and prepare the book and tax PPAs together so they reconcile on purpose rather than by luck. A PPA isn’t a form you file; it’s a position you have to defend for over a decade.
Frequently Asked Questions
A purchase price allocation assigns the total price paid for an acquired business to the individual assets acquired and liabilities assumed at fair value, with any leftover recorded as goodwill. It’s required for both financial reporting (ASC 805) and tax (IRC §1060).
ASC 805 governs the allocation in your GAAP financial statements and drives amortization and impairment testing. IRC §1060 governs the tax allocation reported on Form 8594 and drives tax basis, depreciation, and the seller’s gain character. They follow different rules and can produce different numbers.
Form 8594 is the IRS Asset Acquisition Statement filed under IRC §1060. Both the buyer and the seller attach it to their tax return for the year of the sale, reporting how the purchase price was allocated across the seven asset classes – and their allocations must be consistent.
Generally yes. For financial reporting, ASC 805 requires it whenever you acquire a business. For tax, Form 8594 is required when a group of assets constituting a trade or business is transferred and goodwill could attach. Skipping or mis-preparing either invites restatements or IRS scrutiny.
It depends on the number and complexity of intangibles and whether the deal is cross-border. ASC 805 allows up to 12 months to finalise the book allocation, but starting early avoids retrospective adjustments. The fastest way to get a realistic timeline is to talk it through with us.
You can attempt it, but PPAs turn on defensible intangible valuations and a book/tax reconciliation that most in-house teams aren’t set up to support. Poorly supported allocations invite audit deficiencies and IRS challenges. An independent, standards-based PPA is worth far more than it costs.
Get Started
Get Your Purchase Price Allocation Done Right
Whether you’ve just closed an acquisition, are modelling a deal before signing, or need to reconcile a book and tax allocation that don’t yet agree, CountSure prepares purchase price allocations that hold up – to your auditor, your board, and the IRS. We handle both sides, so your financial statements and your Form 8594 tell one consistent story.
- Free 30-minute consultation with a CPA
- Fixed-fee, fully transparent pricing
- 100% remote - no travel or visa required
