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?