What is purchase price adjustment?
This is a term referring to a change in the value of an asset in between the time when a deal to purchase the asset is initially agreed and when it is finally closed.
Key takeaways
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Purchase price adjustment refers to changes in an asset's value between when a purchase deal is agreed and when it finally closes.
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These adjustments primarily protect buyers by allowing later payments to be reduced if the asset's value decreases during the transaction period.
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Purchase price adjustments can only occur between the buyer and seller directly, with no third-party involvement in the adjustment process.
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In common scenarios like public company takeovers, fluctuating share prices can trigger purchase price adjustments before the deal completion.
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Under US tax laws, purchase price adjustments are not included as gross income for tax purposes.
Where have you heard about purchase price adjustment?
You may have heard about this in the context of a fluctuating share price altering the value of a public-listed company that is in the process of being sold or taken over.
What you need to know about purchase price adjustment.
These adjustments exist mainly to protect the prospective buyer from changes in the value of the asset they are purchasing. For example, if the buyer agrees a deal to buy an asset for for a certain amount, they may pay a sum up front and agree to pay the rest at completion. If the value then changes, the amount paid later may be reduced as part of the purchase price adjustment. These can only be between a buyer and a seller, with no third parties involved.
Find out more about purchase price adjustment.
Under US tax laws, a purchase price adjustment is not included as gross income.