Purchase accounting
The write-up that amortises.
By Surojit Chakraverti, founder of L3VLUP and an investor running a long-short healthcare and technology equities strategy.
On this subject: purchase accounting.Updated 30 September 2026
Part of m&a and private equity models, with the models, labs and guides around it.
What it does
When a company is bought, its assets are restated at fair value. The write-up of identifiable intangibles amortises through the income statement and reduces pro forma earnings, the PP&E write-up adds depreciation, and an inventory step-up passes through cost of sales in the first year; the remainder of the premium is goodwill, which does not amortise and so changes the balance sheet rather than earnings per share. Whether the amortisation is deductible for tax depends on the structure of the deal, but the after-tax charge to reported earnings does not. The merger model carries one line of it; the purchase price allocation model carries the whole allocation behind that line.
Where it lives
The same schedule in each model that carries it, with the rows to open. Open a model in the browser, go to the sheet, and click the lines.
- Assumptions, rows 35–37: Write-up of identifiable intangibles, Write-up amortisation period, Write-up amortisation in EPS
- Pro Forma EPS, row 14: Less write-up amortisation
- Amortisation, rows 6–10: Inventory step-up, Depreciation of PP&E write-up, Amortisation of customer relationships, Amortisation of developed technology…
- Amortisation, rows 13–15: Tax effect, After-tax charge to net income, After-tax charge per pro forma share
What a reviewer looks for
- Amortising goodwill.
- Deducting the write-up amortisation for tax in a stock deal without a deferred tax liability.
- Leaving the write-up out entirely and calling a dilutive deal accretive.
Learn it, then build it
Build · Lab · ~8 min
Accretion / Dilution Animator
Call a deal accretive or dilutive from P/E, premium and financing mix before you open a model.
Read · Guide · 12 min
How to Build a Merger Model: Purchase Accounting, Financing and Accretion
Vocabulary: Goodwill, Purchase Price Allocation (PPA), Identifiable Intangible Assets.