Purchase Accounting Primer

Purchase Accounting Primer - PurchaseAccountingPrimer

Info iconThis preview shows pages 1–6. Sign up to view the full content.

View Full Document Right Arrow Icon
Purchase Accounting Primer
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Tax Basis For A Sale of Securities The seller owes taxes based on the tax rate multiplied by the difference between an asset's "basis" and the sale price. The higher the basis, the lower the taxes owed on sale. Ex: Capital Gain on Common Stock Buy for $3k, Sell for $4k, pay gain on $1k profit Think of tax basis as the amount at which the property is on the seller's books, from the IRS’s perspective.
Background image of page 2
Taxable vs. Non-Taxable “Non-taxable" or "tax free" deals are generally restricted to cases where stock is sold in exchange for a different entity’s stock (as opposed to receiving cash consideration) In such cases, the seller’s tax basis simply transfers over from the original property to the new property. In an LBO context, however, the consideration paid to the seller is generally always in the form of cash . So we’ll be dealing exclusively with transactions that result in a taxable event to the seller.
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
“Excess to Al1ocate” Suppose Subsy is acquired by an LBO Sponsor at an equity purchase price of $200k in a stock purchase See tab 3 of Basis.xls Compare this purchase price with the book equity of $129k on Subsy’s books, and you’ll see that there is a gap, called the "excess to allocate"
Background image of page 4
Accounting for the “Excess to Al1ocate” Under purchase accounting, the book basis in the assets and liabilities (i.e. book value) gets
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 6
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 16

Purchase Accounting Primer - PurchaseAccountingPrimer

This preview shows document pages 1 - 6. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online