Q
"5. Although goodwill created in a merger may not be amortized for shareholder reporting purposes, it may be amortized for Federal tax purposes. Is this statement True or False?
Regardless of your answer selection, thoroughly discuss the appropriate merger accounting treatment (including how goodwill is created) for both shareholder reporting and Federal tax purposes.
A. Answer is Falso. Pg 851. It is advantage for the acquiring firm because the difference of difference of target assets and the depreciation after the merger. The acquiring firm creates a goodwill account with the difference and due to the 1993 tax laws it is able to deduct the difference from the taxable income for 15 yrs.
B. If firm A buys firm b.
1. If the price paid is exactly equal to the acquired firm’s net asset value, then the consolidated balance sheet will be as if the two statements were merged. If the price paid exceeds the net asset value, then asset values will be increased to reflect the price actually paid, whereas if the price paid is less than the net asset value, then assets must be written down when preparing the consolidated balance sheet.
2. Determine the equity value of the acquired firm
3. Goodwill is then determined in the price paid verses the actual valued.
Regardless of your answer selection, thoroughly discuss the appropriate merger accounting treatment (including how goodwill is created) for both shareholder reporting and Federal tax purposes.
A. Answer is Falso. Pg 851. It is advantage for the acquiring firm because the difference of difference of target assets and the depreciation after the merger. The acquiring firm creates a goodwill account with the difference and due to the 1993 tax laws it is able to deduct the difference from the taxable income for 15 yrs.
B. If firm A buys firm b.
1. If the price paid is exactly equal to the acquired firm’s net asset value, then the consolidated balance sheet will be as if the two statements were merged. If the price paid exceeds the net asset value, then asset values will be increased to reflect the price actually paid, whereas if the price paid is less than the net asset value, then assets must be written down when preparing the consolidated balance sheet.
2. Determine the equity value of the acquired firm
3. Goodwill is then determined in the price paid verses the actual valued.
A
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