There Are a Number of Key Tax Effects That Must

question 6

Essay

There are a number of key tax effects that must be considered during a business divestiture and acquisition,from the perspectives of both the vendor and the purchaser.Match the following tax considerations with the most appropriate answer from the list below.Use each answer only once.
Tax consideration:
1.A change in control will restrict the use of losses._____
2.Capital gains and business income may occur in the business,reducing the after-tax proceeds._____
3.The capital gain deduction may apply._____
4.The cost base for assets is based on their market value._____
Answers:
a.A key tax consideration for the sale of shares from the vendor's perspective.
b.A key tax consideration for the sale of assets from the vendor's perspective.
c.A key tax consideration for the purchase of assets from the purchaser's perspective.
d.A key tax consideration for the purchase of shares from the purchaser's perspective.

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Definitions:

Predetermined Overhead Rate

This is a rate used to allocate manufacturing overhead costs to products or job orders, estimated by dividing total estimated overhead costs by an allocation base, such as direct labor hours or machine hours.

Variable Manufacturing Overhead

Costs that vary with the level of production output but are indirect in nature, such as indirect materials and utilities.

Fixed Manufacturing Overhead

Regular, fixed costs associated with operating a manufacturing facility, including costs like rent, depreciation, and property taxes.

Machine-Hours

A measure of production activity that represents the total hours machines are operating over a given period.