What is a bargain purchase for tax purposes?
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Herein, is a bargain purchase gain taxable?
In a bargain purchase situation, GAAP requires the buyer to recognize the bargain element as income immediately. For tax purposes, depending on the allocation of the purchase price, the buyer may recognize that income over several years, or in some cases, in the year of acquisition.
Also Know, how do you allocate purchase price? In acquisition accounting, purchase price allocation is a practice in which an acquirer allocates the purchase price into the assets and liabilities of the target company acquired in the transaction.
Purchase price allocation primarily consists of the following components:
- Net identifiable assets.
Considering this, how do you treat bargain purchases?
For the acquirer to account for a bargain purchase, follow these steps:
- Record all assets and liabilities at their fair values.
- Reassess whether all assets and liabilities have been recorded.
- Determine and record the fair value of any contingent consideration to be paid to the owners of the acquiree.
What is PPA tax?
Mergers and acquisitions trigger many financial and tax reporting requirements. One common requirement for both purposes is acquisition accounting, that is, a purchase price allocation (PPA). A PPA is an allocation of the purchase price paid to the assets and liabilities included in a transaction.