Purchase Price Allocation and Impairment Valuation: Ind AS 103 and Ind AS 36
By CA V. Viswanathan, FCA, ACS, CFE, IBBI Registered Valuer (IBBI/RV/03/2019/12333). V Viswanathan & Associates, Chartered Accountants, FRN 013713S. Law stated as at 13 November 2026.
A purchase price allocation measures the assets and liabilities of an acquired business at fair value on the acquisition date, as Ind AS 103 requires, and leaves the balance as goodwill. An impairment valuation then tests that goodwill every year under Ind AS 36 by comparing the carrying amount of the business unit with its recoverable amount. The standards prescribe the measurement but not the signatory; auditors look for an independent valuer. CA V. Viswanathan, IBBI Registered Valuer for securities or financial assets (IBBI/RV/03/2019/12333), prepares both for companies across India from Chennai.
What are purchase price allocation and impairment testing?
When a company that follows Ind AS acquires a business, it cannot simply record the price paid as goodwill. Ind AS 103 requires the acquirer to identify every asset acquired and liability assumed, including intangible assets the seller never recorded, and to measure them at fair value on the acquisition date. What is left over is goodwill. This exercise is the purchase price allocation (PPA).
Goodwill is then not amortised. Instead, Ind AS 36 requires it to be tested for impairment every year: the business unit that carries the goodwill is valued, and if its recoverable amount is below its carrying amount, the shortfall is written off. Both exercises are valuations, and both are examined closely by auditors.
What do the standards require?
| Requirement | Standard |
|---|---|
| Identifiable assets acquired and liabilities assumed are measured at their acquisition-date fair values | Ind AS 103, paragraph 18 |
| Goodwill is the excess of the consideration transferred, any non-controlling interest and any previously held interest over the net identifiable assets | Ind AS 103, paragraph 32 |
| A gain on a bargain purchase is taken to capital reserve, not to profit | Ind AS 103, paragraphs 34 and 36A |
| Provisional amounts may be adjusted during a measurement period that cannot exceed one year from the acquisition date | Ind AS 103, paragraph 45 |
| Goodwill, and intangible assets with an indefinite useful life or not yet available for use, are tested for impairment annually | Ind AS 36, paragraph 10 |
| Recoverable amount is the higher of fair value less costs of disposal and value in use | Ind AS 36, paragraphs 6 and 18 |
| A unit to which goodwill is allocated is tested annually and whenever there is an indication of impairment; the test may be done at any time in the year if done at the same time every year | Ind AS 36, paragraphs 90 and 96 |
| An impairment loss recognised for goodwill is not reversed | Ind AS 36, paragraph 124 |
Which intangible assets are usually identified, and how are they valued?
| Asset | Usual method | Key inputs |
|---|---|---|
| Customer relationships and contracts | Multi-period excess earnings | Attrition, margin, charges for other assets used |
| Brand and trade names | Relief from royalty | Royalty rate, revenue, useful life |
| Technology and software | Relief from royalty or cost to recreate | Royalty rate or development cost, obsolescence |
| Non-compete agreements | With-and-without comparison | Probability and effect of competition |
| Property, plant and equipment | Market or depreciated replacement cost | Valued by valuers of the relevant asset class |
The values are then tested against each other: the weighted average return on all assets, including goodwill, should reconcile to the discount rate implied by the purchase price. A large unexplained gap usually means an asset has been missed or over-valued.
What if the two companies are under common control?
The allocation described above does not apply to a combination of entities or businesses that are controlled by the same party before and after the transaction, such as a merger of two subsidiaries or the transfer of a business within a group. Appendix C of Ind AS 103 requires these to be accounted for by the pooling of interests method: assets and liabilities are carried over at their existing carrying amounts, no adjustment is made to fair value and no new asset or liability is recognised, prior periods are restated as if the combination had taken place from the beginning of the earliest period presented, and the difference between the consideration and the share capital of the transferor goes to capital reserve. No goodwill arises, so no purchase price allocation is needed; a valuation may still be needed to fix the share exchange ratio.
Who can sign a PPA or impairment valuation?
| Purpose | Registered Valuer | Merchant Banker | Chartered Accountant |
|---|---|---|---|
| Purchase price allocation (Ind AS 103) | Yes. The usual choice for intangible and financial assets | Yes | Yes. The standard prescribes the measurement, not the signatory |
| Impairment test (Ind AS 36) | Yes | Yes | Yes. Often prepared by management and reviewed by a valuer |
| Land, buildings, plant and machinery within the allocation | Yes, by a valuer registered for that asset class | No | No |
CA V. Viswanathan is a chartered accountant and an IBBI Registered Valuer for securities or financial assets (IBBI/RV/03/2019/12333). His registration can be checked on the IBBI register of registered valuers. Intangible assets and business units fall within that asset class; land, buildings and machinery are valued by valuers registered for those classes, and we coordinate with them.
Worked example: allocation and a later impairment
Illustrative figures, not real companies. An acquirer pays ₹50,00,00,000 for all the shares of a company whose net assets at book value are ₹22,00,00,000. The valuation identifies the following fair value adjustments. Deferred tax is taken at 25% of the adjustments.
| Item | Amount |
|---|---|
| Net assets at book value | ₹22,00,00,000 |
| Customer relationships | ₹9,00,00,000 |
| Brand | ₹5,00,00,000 |
| Technology | ₹4,00,00,000 |
| Uplift in property, plant and equipment | ₹2,00,00,000 |
| Deferred tax liability on the adjustments at 25% | −₹5,00,00,000 |
| Net identifiable assets at fair value | ₹37,00,00,000 |
| Consideration transferred | ₹50,00,00,000 |
| Goodwill | ₹13,00,00,000 |
Two years later the unit that carries this goodwill has a carrying amount of ₹48,00,00,000, including the goodwill. Its value in use is ₹44,00,00,000 and its fair value less costs of disposal is ₹41,00,00,000.
- Recoverable amount: the higher of ₹44,00,00,000 and ₹41,00,00,000 = ₹44,00,00,000.
- Impairment loss: ₹48,00,00,000 − ₹44,00,00,000 = ₹4,00,00,000.
- The loss is applied first to goodwill, which falls from ₹13,00,00,000 to ₹9,00,00,000. It cannot be reversed in a later year.
What documents are needed?
- Share or business purchase agreement and the deal model
- Acquisition-date balance sheet of the acquiree
- Projections used for the deal, by business line
- Customer data: contracts, revenue by customer, attrition
- Details of brands, technology, licences and non-compete terms
- For impairment: the unit's carrying amount, approved budgets and the previous year's test
What is the process and how long does it take?
- Scoping call with management and, where possible, the auditor.
- Engagement letter with a fixed fee and document list.
- Identification of assets, valuation of each, and reconciliation of returns.
- Draft shared with management and the auditor for comments.
- Signed report with UDIN, within the measurement period.
Reports are usually issued within 5–7 working days of complete information, and within 15 working days for complex cases. The clock starts when the last document is received, not on the date of engagement. An allocation with several intangible assets usually takes the longer period.
What does a purchase price allocation or impairment valuation cost?
Our fee for a purchase price allocation or impairment valuation starts from ₹35,000 + 18% GST. The figure depends on the number of instruments or companies to be valued, whether projections exist, and how many laws the same transaction has to satisfy. We quote a fixed fee after a first call and before any work starts. Statutory filing fees, stamp duty and any merchant banker's fee are separate.
Related valuations
The exchange ratio for a merger is a separate report: see merger swap ratio valuation in India.
Every valuation report we issue, with the law behind it and the person who must sign it, is listed on our valuation services page.
About V Viswanathan & Associates
- Chartered Accountants, FRN 013713S— Practising since 2012 from G-131, Spencer Plaza, Anna Salai, Chennai.
- IBBI Registered Valuer— Securities or financial assets, CA V. Viswanathan (IBBI/RV/03/2019/12333), registered 30 September 2019.
- FCA, ACS, CFE— Member of ICAI since 2012 and Fellow since 2017; company law, tax and forensic accounting in one practice.
- Across India— Serves clients across India from Chennai through video consultations and digitally signed reports.
Frequently Asked Questions
What is purchase price allocation under Ind AS 103?
It is the process of measuring the identifiable assets acquired and liabilities assumed in a business combination at their acquisition-date fair values, including intangible assets not recorded by the seller, and recognising the remainder of the consideration as goodwill.
How long does a company have to complete the allocation?
Provisional amounts can be adjusted during the measurement period, which cannot exceed one year from the acquisition date (Ind AS 103, paragraph 45).
How often is goodwill tested for impairment?
Annually, and whenever there is an indication that the unit may be impaired. The annual test can be done at any time during the year, provided it is done at the same time every year (Ind AS 36, paragraphs 90 and 96).
What is recoverable amount?
The higher of an asset's or cash-generating unit's fair value less costs of disposal and its value in use. Value in use is the present value of the future cash flows expected from the asset or unit.
Can an impairment loss on goodwill be reversed?
No. Ind AS 36, paragraph 124 provides that an impairment loss recognised for goodwill shall not be reversed in a subsequent period.
How is a bargain purchase treated under Ind AS?
The excess of net identifiable assets over the consideration is recognised in other comprehensive income and accumulated in equity as capital reserve, or directly in capital reserve where there is no clear evidence of the reason for the bargain (Ind AS 103, paragraphs 34 and 36A).
Is a purchase price allocation needed for a merger within a group?
No. A combination of entities under common control is accounted for by the pooling of interests method under Appendix C of Ind AS 103: assets and liabilities are taken at carrying amounts, no fair value adjustments are made and no goodwill is recognised.
Is a registered valuer required for a PPA?
Ind AS prescribes how to measure, not who signs. In practice auditors look for an independent valuation, and a registered valuer for securities or financial assets is the usual choice for intangible assets and business units.
How long does a PPA valuation take?
Usually within 15 working days of complete information where several intangible assets are involved; a single-unit impairment test usually takes 5–7 working days.
Related Guides
Law stated as at 13 November 2026. Official sources: Ind AS 103, Business Combinations, Ind AS 36, Impairment of Assets (Ministry of Corporate Affairs), IBBI register of registered valuers. This page is general information, not advice on a specific transaction.
Purchase Price Allocation and Impairment
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