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Module V· Purchase Price Allocation (PPA) - Step-UpsAdvanced
Question

What is the typical inventory step-up pitfall in a modeling test, and how do you show the senior you understand it?

Answer

The pitfall is treating inventory step-up like PP&E and amortizing it over several years. Inventory step-up should usually flow through COGS as the acquired inventory is sold, often in the first year. Show it as a one-time gross-margin drag below revenue / in COGS, then normalize it out when discussing run-rate EBITDA or EBIT.

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