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Graduate-Level Modeling · Business Combinations

Business Combination Purchase Price Allocation & Consolidation Modeler

Goodwill isn't a plug you back into. It's what's left after every fair value step-up, every deferred tax adjustment, and a real accounting policy choice about non-controlling interest.

How To Use This Model

Reading This Tool

Enter the deal's purchase consideration, the target's book value, and the fair value step-ups identified in due diligence.

The tool builds the fair value of identifiable net assets, nets off the deferred tax liability those step-ups create, and derives goodwill (or a bargain purchase gain) under either the full goodwill or partial goodwill method, IFRS 3's actual policy choice when less than 100% is acquired.

Deal & Target Inputs

Purchase Consideration Transferred $40M

Target's Book Value Of Net Assets $18M

% Of Target Acquired 80%

Fair Value Of Non-Controlling Interest $9M

Goodwill Method (Only Applies If <100% Acquired)

Full Goodwill Partial (Proportionate) Goodwill

Fair Value Step-Ups

PP&E Step-Up $3.0M

Customer Relationships (New Intangible) $5.0M

Developed Technology (New Intangible) $4.0M

Trade Name (New Intangible) $1.5M

Deferred Tax Rate On Step-Ups 26.5%

Purchase Price Allocation

Goodwill Recognized

FV Of Identifiable Net Assets

Deferred Tax Liability On Step-Ups

Non-Controlling Interest On Balance Sheet

Purchase Price Allocation Bridge

Business Combinations & Consolidation

The Core Formulas

FV Identifiable Net Assets = Book Value + Step-Ups − Deferred Tax Liability
Full Goodwill = Consideration + FV of NCI − FV Identifiable Net Assets
Partial Goodwill = Consideration − Ownership% × FV Identifiable Net Assets
NCI (Partial Method) = (1 − Ownership%) × FV Identifiable Net Assets

When To Actually Use This Model

Teaching purchase price allocation mechanics in an advanced financial accounting or M&A course.
Sanity-checking a purchase accounting memo before it goes to auditors, or reconciling a valuation specialist's intangible asset schedule against the resulting goodwill.
Illustrating the accounting policy choice IFRS 3 actually gives acquirers when less than 100% of a target is acquired.

Key Assumptions & Limitations

US GAAP (ASC 805) mandates the full goodwill method, only IFRS 3 offers the acquirer a choice on an acquisition-by-acquisition basis.
Real deals often include contingent consideration, replacement share-based payment awards, and pre-existing relationships requiring separate fair value measurement, all omitted here for clarity.
ASPE (Canadian private company GAAP) does not permit the full goodwill method at all, NCI is always measured at its proportionate share of identifiable net assets.

Foundational Reference

International Accounting Standards Board. (2008). IFRS 3 Business Combinations (revised). IFRS Foundation.

Need to test that goodwill for impairment later?

Open The Goodwill Impairment Model →