Discuss the strengths and weaknesses of the tax rule providing for the 15-year amortization of the cost of business acquisition intangibles.
Added by Jennifer H.
Step 1
This means the cost is deducted evenly over 15 years, reducing taxable income annually. Show more…
Show all steps
Your feedback will help us improve your experience
Jennifer Stoner and 62 other Principles of Accounting educators are ready to help you.
Ask a new question
Labs
Want to see this concept in action?
Explore this concept interactively to see how it behaves as you change inputs.
Recommended Videos
The intangible assets of a company being acquired were written up for book purposes from a pre-deal book value of $50m to $60m, but not for tax purposes, where the tax basis remained $50m. Assume that the target's definite-lived intangible assets are amortized on a straight-line basis over 15 years for both book and tax purposes. Also assume that the target assets will be amortized at the acquirer's tax rate of 40% post-acquisition. What is the impact on goodwill as a result of the book write-up and no tax step-up?
Jennifer S.
Normac Corp is considering a five-year project to improve its production efficiency. Buying a new machine press for $560,000 is estimated to result in $150,000 in annual pre-tax cost savings. The press falls into Class 8 for CCA purposes (CCA rate of 20% per year), and it will have a salvage value at the end of the project of $55,000. The press also requires an initial investment in spare parts inventory of $20,000, along with an additional $3,100 in inventory for each succeeding year of the project. If the company's tax rate is 35% and its discount rate is 9%, should it buy and install the machine press? (2 pts) Show your work (16 pts) and explain why (2 pts).
Akash M.
Question 1 of 20: The intangible assets of a company being acquired were written up for BOTH book and tax purposes from a pre-deal book value of $50m to $60m as part of the acquisition accounting. The company's definite-lived intangible assets are amortized on a straight-line basis over 15 years for both book and tax purposes. Also, assume the acquirer has a tax rate of 40%. Assume the purchase price exceeds the fair value of net assets. What is the impact of the write-up on the goodwill recorded in the acquisition? A. A decline in goodwill of $10m B. An increase in goodwill of $6m C. A decline in goodwill of $6m D. An increase in goodwill of $10m E. No impact on goodwill
Tavis L.
Recommended Textbooks
Horngren’s Cost Accounting
Cost Accounting A Managerial Emphasis
Principles of Accounting Volume 1: Financial Accounting
Transcript
Watch the video solution with this free unlock.
EMAIL
PASSWORD