Asset Write Up Impact on Balance Sheet - IBD Technical Question
So let’s say you were buying a company for $1 billion with half-cash and half-debt, and you had a $100 million asset write-up and a tax rate of 40%. In addition, the seller has total assets of $200 million, total liabilities of $150 million, and shareholders’ equity of $50 million. Here’s what would happen to the combined company’s balance sheet (ignoring transaction/financing fees):
*• First, you simply add the seller’s Assets and Liabilities (but NOT Shareholders’ Equity – it is wiped out) to the buyer’s to get your “initial” balance sheet. Assets are up by $200 million and Liabilities are down by $150 million.
• Then, Cash on the Assets side goes down by $500 million. • Debt on the Liabilities & Equity side goes up by $500 million.
• You get a new Deferred Tax Liability of $40 million ($100 million * 40%) on the Liabilities & Equity side.
• Assets are down by $300 million total and Liabilities & Shareholders’ Equity are up by $690 million ($500 + $40 + $150).
• So you need Goodwill & Intangibles of $990 million on the Assets side to make both sides balance.*
Why is the $100M in Asset Write-Ups not being included in the Assets side of the BS?
If included, what would be needed to be done for the BS to balance?
How many different accounts do you use to ask technical questions across WSO and reddit?
EDIT: Ah yes, the classic. Went back and threw monkey shit at my past comments. Stay low EQ my friend. Never change.
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