Acquisition Method Accounting/Goodwill Flashcards
How is book basis goodwill created using the acquisition method
created when the acquisition price exceeds the FMV of the identifiable assets (ASC 805)
What is the effect is goodwill is found to be impaired
- expense recorded on the income statement for the difference between the new goodwill value and book basis
- reduction of book basis goodwill on the balance sheet - reduce asset basis
How us goodwill treated for income tax purposes
amortized straight line and is deductible from taxable income - straight line 15 years
When is tax basis income generated
when an acquisition generates a corporate level tax
What is the effect when book basis goodwill is impaired and there is no tax basis goodwill
GAAP ETR will be extremely high - PTI is reduced by the impairment expense but no reduction to the actual tax return
How is the effect of book basis goodwill impairment when no tax basis goodwill exists reflected
Permanent difference - positive adjustment in the tax rate reconciliation schedule
what are the book-tax difference for a taxable asset asquisition
none - both book and tax basis recorded at FMV
what is book basis equal to
FMV asset/stock
when can a deferred tax liability be recognized relating to goodwill
when tax basis goodwill exists, and it differs from book basis goodwill
How are assets/liabilities of the target company valued according to GAAP
FMV, excess purchase price allocated to Goodwill
How is book basis amortized
NOT - subject to an annual impairment test
What are the 3 acquisition forms that generate tax basis goodwill
must have corporate level tax:
- taxable asset
- taxable stock w/ 338 election
- stock sale of sub w/ 338(h)(10)
Is goodwill difference permanent or temporary book-tax difference
- permanent - do not assume that it will be impaired so we note it as a permanent difference
- book goodwill will be capitalized not expensed unless impaired
how do we calculate tax basis when there is a 338/338(h)(10)
ADSP = Price - TASSETB(t)/(1-t)
what should the total basis equal for GAAP with a 338 election
purchase price + TAX338
