PPA Report in Compliance with IFRS 3 and Tax Benefits of Goodwill
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One of the crucial aspects of M&A transactions is maximizing the tax benefits arising from the incorporation of the acquired company. The preparation of a Purchase Price Allocation (PPA) report in compliance with IFRS 3 is essential for identifying and valuing intangible assets, which may include trademarks, patents, and customer relationships, among others.
I work at Grant Thornton Brazil and routinely prepare these PPA reports. Please let me know if you need any assistance with this topic.
In fact, this is one of the most important activities int terms of maximizing not only goodwill deductibility, but surplus of both other tangibles and intangibles tax deductibility as well. Hiring an independent appraisal is not only required by law but really helps Company in addressing complex issues such as: earn-outs, options, contingent payments, among others.
Recognition of Goodwill:
Goodwill is recognized in the financial statements when a business combination occurs.
It is calculated as the difference between the purchase consideration (the price paid for the acquired company) and the fair value of the identifiable assets and liabilities acquired.
Calculation of Goodwill: The formula for calculating goodwill is:Goodwill
=
Purchase Price
+
Fair Value of Non-controlling Interest
+
Fair Value of previously held equity interests
−
Fair Value of Net Assets Acquired
Goodwill=Purchase Price+Fair Value of Non-controlling Interest+Fair Value of previously held equity interests−Fair Value of Net Assets Acquired
Purchase Price includes cash, stock, or other consideration transferred.
Fair Value of Net Assets Acquired includes all identifiable assets (like property, plant, and equipment, inventory, and intellectual property) and liabilities (like debts, obligations, and contingent liabilities).
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