Mergers and acquisitions involve complicated tax and accounting rules. Mergers and acquisitions can be taxable or tax-free transactions. In a taxable transaction each selling shareholder must pay taxes on the stock’s capital appreciation. Should the acquiring fi rm elect to write up the assets, additional tax implications arise. However, acquiring fi rms do not generally elect to write up the assets for tax purposes. The selling stockholders do not pay taxes at the time of a tax-free acquisition. The purchase method is used to account for mergers and acquisitions.

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