Impairment Test – Purchase Price Allocation

Impairment Test

Current IFRS regulations prescribe an annual impairment test regarding all intangible fixed assets of indeterminate lifespan. The impairment test calculates the value of the asset, in most cases taking into consideration estimated future cash flows, however IFRS is ambiguous regarding the methodology to be used. Because the intangible fixed asset is, in almost all cases, indistinguishable from the rest of company, the company as a whole almost always becomes the object of the valuation.

As an independent expert, Marktlink often conducts impairment tests on behalf of accountants or (listed) companies. Using our extended experience and up-to-date knowledge we can conduct professional tests, which always involve company-specific characteristics and market conditions. We not only answer the question of what the value of the intangible asset is, we also provide insight into how the value was obtained, what the key value drivers are, and possibilities with regard to value creation in the future.

Purchase Price Allocation

As part of the follow-up to an acquisition, the purchase price has to be booked in the annual accounts of the purchasing party. Under IFRS, an allocation of the goodwill obtained needs to be executed using a Purchase Price Allocation (‘PPA’). In a PPA all the assets, debt and (conditional) obligations identified will be valued at fair value. This will also identify, in as far as it is possible to do so, the components of goodwill, which may include the value of brand names, contracts and customer relationships.
A solid PPA requires professional and independent expertise. As qualified valuators, we are experts at conducting a full PPA. We provide insight into the value of identified intangible fixed assets based on the market, costs, or income methodology. From experience we know that (variations on) the latter (e.g. relief from royalties) is used the most. Of course we will also provide you with a complete and clear picture of the factors underlying and assumptions used for the determination and allocation of the valuation.

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