Purchase of Target Assets: Taxable Asset Acquisition with NOLs Acq Price = 900 C

Question

Purchase of Target Assets:

Taxable Asset Acquisition with NOLs

Acq Price = 900

Cash = 900

Acquirer Stock = 0

Percentage of Deal in cash = 100%

Target Shareholders' stock basis = 100

Target asset basis = 200

Corp Tax rate = 35%

Cap Gain rate = 20%

Discount rate = 10%

Amortization/Dep Periods (yrs) = 10

Target's NOLs = 400

FIND and please show brief calculations:

Target:

FMV of consideration received

Realized Gains/losses

Recognized G/L

Income Tax

FMV of after tax consideration

Target ShareHolder:

FMV of consideration received

Realized Gains/losses

Recognized G/L

Income Tax

FMV of after tax consideration to target SH

Basis in Acquirer stock

Acquirer:

Recognizd G/L

Basis in Target's assets

Basis in Target Stock

Explanation / Answer

1) fair value of assets

=(book value of assets + acq. value of assets - liabilities) * paid up value of share / Total vale of share capital

900 + 900 - 180= 1620

where 180 is deprication during 10 years at rate 10% per year at book value price

2) FMV after tax consideration

target asset basis = 200

1620 + 200 = 1820

1820 * 35/100 =637 ( 35% corporate tax)

1820 * 20/100= 364 (20% capital gains tax)

1820 * 10/100 = 182 ( 10% discount)

1820 - 637 -364 + 182 = 1001

net operating losses are 400

so 1001 - 400 = 601 fmv after taxation

3) loss in asset value is 900 - 601 = 299

4) income tax is not properly justify in case of assets.. it depends upon the valuation of assets. if their is a loss in value of assets, tax is not imposed on it.

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.