Purchase Price Allocation (PPA) is an essential accounting process executed after the acquisition of one company by another. This process involves assigning the total purchase price paid by the acquiring company to the identifiable tangible and intangible assets acquired and any liabilities assumed. The goal is to reflect accurately the fair value of these assets and liabilities in the acquiring company's financial statements.

For example, if Company A acquires Company B for $10 million, Company A would need to allocate this $10 million among Company B's assets such as inventory, machinery, patents, and trademarks, as well as its liabilities like debt or deferred tax liabilities. If there is any unallocated purchase price remaining, it is recorded as goodwill on the balance sheet.

PPA is significant for providing a clear view of the acquisition's financial impact, enabling better decision-making and ensuring compliance with accounting standards.