DTL Creation Question (After writing up assets)
Hi friends,
I was confused as to how the actual process will go to record to extra DTL. Assuming company A acquires company B with the stock method, which has $100 in assets and no liabilities, for $200 in cash. The tax rate is 40%. The assets have a 10 year straight-line depreciation. Logically a $100 in asset value difference exists between the book value of assets and value of assets as recorded for tax purposes, hence $40 worth of DTL should be created ($100 x 40%). However, I was just thinking through from a flow through perspective - there would be a $200 decrease in cash and $200 gain in assets on the balance sheet, and if the $40 in DTL is also created, the balance sheet will now not balance. What is the solution for this? I am thinking of creating another $40 item for goodwill just to balance it out, but not sure if that is the right answer.
Is 200 a fair value of the assets in your example?
Yup!
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