Question

On June 1 of year 1, Riverside Corp. (RC), a calendar-year taxpayer, acquired the assets of another business in a taxable acquisition. When the purchase price was allocated to the assets purchased, RC determined it had purchased $1,800,000 of goodwill for both book and tax purposes. At the end of year 1, RC determined that the goodwill had not been impaired during the year. In year 2, however, RC concluded that $390,000 of the goodwill had been impaired and wrote down the goodwill by $390,000 for book purposes.

Required:

1. What book-tax difference associated with its goodwill should RC report in year 1? Is it favorable or unfavorable? Is it permanent or temporary?
2. What book-tax difference associated with its goodwill should RC report in year 2? Is it favorable or unfavorable? Is it permanent or temporary?

Answer 1

solution

a. Expense reason requires RC to amortize the $1,200,000 altruism over a time of 15 years. Deterioration strategy to be utilized will be straight line technique. Presently 15 years = 15*12 = 180 months.

Amortization sum for year 1 will be for a large portion of the year for example a half year. Sum = 1,200,000/180*6 = $40,000. This sum is for duty purposes.

There is no derivation for book purposes (as controlled by RC). In this manner the thing that matters is 40,000 - 0 = $40,000. This is a positive contrast as no finding has been made for book reason and furthermore it is brief.

b. Ammortization sum for year 2 = 1,200,000/15 years = $80,000. This is for duty reason.

Sum for book reason = 200,000 (as referenced in the inquiry)

Contrast = 200,000 - 80,000 = 120,000

This sum is troublesome as ammortization for book purpose>the sum for assessment reason. The thing that matters is impermanent