The result is that the acquirer takes over the target and the former stockholders of the target company now become stockholders in the acquirer.
The former target stockholders get their acquirer stock from a liquidating dividend.
The purpose of these types of mergers is to minimize tax repercussion, so if only stock is exchanged, no gain or loss will be recognized by either party.
We've then written off the investment (Cr investment, Dr P&L).Just wanted to know what I need to disclose in relation to this, and how this should look in the P&L. For example, if a shareholder receives ,000 in cash along with stock from a merger and his investment had grown in value by ,000 based on his original investment of ,000, the following would occur.The shareholder would have to report ,000 in gains and his new basis in the stock would be ,000.When a corporation decides to shut down, it liquidates its assets.
This means that the business sells off not just any inventory it may have, but its tools of production, building and any other assets it may have.However, if the merger is for cash and stock, the target company's stockholders must recognize gain attributed to the transaction to the extent they received cash.Their basis would be increased by the amount of gain they were taxed on.As a member, you'll also get unlimited access to over 70,000 lessons in math, English, science, history, and more.Plus, get practice tests, quizzes, and personalized coaching to help you succeed.The basis in the stock is how much the taxpayer paid to obtain the stock.