Financial Reporting & Tax Compliance
Purchase price allocation
One measurement for the balance sheet and the Brazilian tax authority.
One measurement for the balance sheet and the Brazilian tax authority.
Purchase price allocation (PPA) allocates the price of an acquisition among the acquiree's identifiable assets, the liabilities assumed and goodwill. When an entity obtains control of a business, CPC 15 and IFRS 3 require it to recognise the identifiable assets acquired and liabilities assumed, generally at fair value, and to recognise goodwill as the residual, or a bargain purchase gain when the residual is negative. In Brazil the same work supports the balance sheet and, for acquisitions between non-dependent parties, the tax treatment of fair value step-ups and goodwill under Law 12,973.
CPC 15 (R1) and IFRS 3 require the allocation whenever the acquirer obtains control of a business, whether through a share purchase, a merger or another form of combination. Measurement is at the acquisition date, and the standard allows adjustments during a measurement period of up to one year as information about facts existing at that date becomes available.
When the acquired set is not a business, the transaction is an asset acquisition. The cost is allocated on the basis of relative fair values and no goodwill arises. Combinations of entities under common control, frequent in Brazilian corporate reorganisations, are outside the scope of CPC 15.
CPC 15 (R1) · IFRS 3
The work starts with an inventory of the intangibles that meet the contractual-legal or separability criterion, such as brands, customer relationships, technology, software, favourable contracts, licences and non-compete agreements. Each is measured with the method that reflects how it generates cash, including Relief from Royalty, MPEEM, With and Without and replacement cost.
Real estate, machinery and equipment are valued by CBG's Real Estate Appraisal and Fixed Assets teams within the same engagement, on consistent assumptions. The report closes with a reconciliation of the weighted average return on assets (WARA), the cost of capital (WACC) and the transaction's internal rate of return, and with the deferred taxes on differences between fair value and tax base.
CPC 04 · CPC 46 · CPC 32 · IVS 210
For fair value step-ups and goodwill to receive the tax treatment set out in Law 12,973, the report must be prepared by an independent expert and filed with the Federal Revenue Service, or have its summary registered with a registry of deeds and documents, by the last business day of the thirteenth month after the acquisition.
After a merger (incorporação), amalgamation (fusão) or spin-off (cisão) between acquirer and acquiree, the step-up becomes part of the cost of the related asset, and goodwill may be deducted from the income tax and CSLL bases at a maximum rate of 1/60 per month. Both treatments require the acquisition to have taken place between non-dependent parties, as defined in art. 25 of Law 12,973, and the report to have been filed or registered on time. Otherwise the law denies the benefit.
Law 12,973/2014, arts. 20, 22 and 25 · Decree-Law 1,598/1977, art. 20 · RFB Normative Instruction 1,700/2017
The work starts from the purchase agreement, the acquiree's financial statements and the projections that supported the price. The working papers document every assumption with its source and calculation, from raw data to conclusion, so that any reviewer can rebuild the result.
A single engagement serves both the accounting and the tax purpose, with the bridge between the two regimes demonstrated. CBG's PPA Guide (in Portuguese) details each step.
The law requires a report prepared by an independent expert, without restricting the profession or defining the concept. Independence must therefore be demonstrable, which is why CBG provides no audit, M&A advisory or structuring services to the parties of the work it values.
The last business day of the thirteenth month after the acquisition, for filing with the Federal Revenue Service or registration of the summary. For an acquisition in March 2026, the deadline is 30 April 2027, after the accounting measurement period ends in March 2027.
Both start from the same fair value measurement at the acquisition date. The tax report shows the step-up or step-down of each asset and the residual goodwill under Law 12,973, and the accounting report supports the entries and disclosures required by CPC 15. CBG delivers both, reconciled.
CPC 15 allows provisional amounts at the first reporting date after the acquisition and adjustments during the measurement period, which cannot exceed one year from the acquisition date.
For entities applying full CPC 15 and CPC 01, goodwill stays on the balance sheet without amortisation, allocated to cash-generating units and tested for impairment at least annually. Entities using CPC PME, the Brazilian standard for small and medium-sized entities, amortise goodwill over its estimated useful life (Section 19). See the page on impairment testing.