Corporate Restructuring – NBC Institute

AT – Nov 2022 – L3 – Q5 – Taxation and Corporate Governance

Analyze the tax implications for Yemmysea Beverages Limited’s proposed merger and acquisition arrangements, covering scenarios where a company absorbs another, a merger results in business cessation, and a business is sold or transferred. Additionally, explain the regulatory powers of the FIRS in mergers and acquisitions.

Question

In its bid to increase market power, growth, and enhance operating economies, the Board of Directors of a medium-sized beverage company, Yemmysea Beverages Limited, located in Abeokuta, is considering proposals for a merger or acquisition with another business entity in the same industry. The Chairman of the Board found all the proposals attractive.

However, the Financial Accountant advised that the Board should consider the tax implications associated with each proposed merger or acquisition arrangement. To address this, a reputable tax consulting firm, experienced in mergers, acquisitions, and reorganizations, was recommended to provide expert analysis.

Your firm has now been approached to offer professional advice on the tax implications of each of the following merger or acquisition arrangements:

Proposal 1: When an existing company absorbs another existing company.
Proposal 2: When a merger results in the cessation of business.
Proposal 3: When a business is sold or transferred.

Required:

As the company’s Tax Consultant, submit a report to the Managing Director explaining the following:

Tax implications when an existing company absorbs another existing company.
(5 Marks)
Tax implications when a merger results in the cessation of business.
(3 Marks)
Tax implications when a business is sold or transferred.
(3 Marks)
The powers of the Federal Inland Revenue Service (FIRS) on issues concerning mergers and acquisitions of companies.
(4 Marks)

Total: 15 Marks

Answer

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Tags: Asset Transfer, Business Cessation, Capital Gains Tax (CGT), Compliance, Corporate Restructuring, FIRS Authority, Merger and Acquisition Tax Implications, Stamp Duty, Tax Reliefs, VAT
Level: Level 3

Topic: Taxation and Corporate Governance
Series: NOV 2022

AFM – Nov 2017 – L3 – Q5c – E: Corporate Reconstruction and Reorganisation

Discusses four problems associated with management buy-outs (MBOs).

Question

Management Buy-Outs can be the best way of maintaining links with a subsidiary, and can ensure the co-operation of management if a disposal is inevitable. However, there are a lot of problems in the management buy-out process.

Required:
Explain FOUR problems associated with Management Buy-Outs. (4 marks)

Answer

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Tags: Corporate Restructuring, Financing MBOs, Management buy-outs, MBO challenges
Level: Level 3

Topic: Corporate reconstruction and reorganisation
Series: NOV 2017

AFM – Nov 2018 – L3 – Q4 – Financial reconstruction

Explain the concept of EVA, calculate EVA and NOPAT for 2016 and 2017, and distinguish between spin-offs and sell-offs.

Question

Jabesh Company limited income statements for the years 2016 and 2017 are provided below:

The company directors at a meeting argued that the use of Economic Value Added as a measure of corporate performance is more relevant to current developments in financial markets and agreed to employ it in assessing its performance for years 2017 and 2016.

Additional information is as follows:

The allowance for doubtful debts was GH¢300,000 at 1 January 2016, GH¢250,000 at 31 December 2016, and GH¢350,000 at 31 December 2017.
Research and development costs of GH¢500,000 were incurred during each of the years 2016 and 2017 on Project Z. These costs were expensed in the income statement, as they did not meet the requirements of financial reporting standards for capitalization. Project Z is not complete yet.
At the end of 2015, the company had completed another research and development project, Project X. Total expenditure on this project had been GH¢1,500,000, none of which had been capitalized in the financial statements. The product developed by Project X went on sale on 1 January 2016, and the product was a great success. The product’s lifecycle was only two years, so no further sales of the product are expected after 31 December 2017.
The company incurred non-cash expenses of GH¢15,000 in both years.
Capital employed (equity plus debt) per the statement of financial position was GH¢33,500 at 1 January 2016 and GH¢37,000 at 1 January 2017.
The pre-tax cost of debt was 5% in each year. The estimated cost of equity was 12% in 2016 and 14% in 2017. The rate of corporate tax was 25% during both years.
The company’s capital structure was 60% equity and 40% debt.
There was no provision for deferred tax.

Required:
a) Explain what the directors meant by Economic Value Added (EVA). (2 marks)

b) Calculate the company’s Economic Value Added (EVA) for the years ended 2017 and 2016. (5 marks)

c) Calculate the Net Operating Profit After Tax (NOPAT) for the years ended 2017 and 2016. (6 marks)

d) Explain spin-offs and sell-offs, and identify THREE (3) reasons for spin-offs. (7 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Capital Employed, Corporate Restructuring, Economic Value Added (EVA), Net Operating Profit After Tax (NOPAT), Spin-offs
Level: Level 3

Topic: Financial reconstruction
Series: NOV 2018

BCL – Mar 2024 – L1 – Q5d – Legal Implications Relating to Companies in Difficulty or in Crisis

Distinguish between "Arrangement" and "Amalgamation" in company law.

Question

Distinguish between “Arrangement” and “Amalgamation” in Company Law. (3 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Amalgamation, Arrangement, Companies Act, Company Law, Corporate Restructuring
Level: Level 1

Topic: Legal implications relating to companies in difficulty or in crisis
Series: MAR 2024

AT – Nov 2022 – L3 – Q5 – Taxation and Corporate Governance

Analyze the tax implications for Yemmysea Beverages Limited’s proposed merger and acquisition arrangements, covering scenarios where a company absorbs another, a merger results in business cessation, and a business is sold or transferred. Additionally, explain the regulatory powers of the FIRS in mergers and acquisitions.

Question

Your firm has now been approached to offer professional advice on the tax implications of each of the following merger or acquisition arrangements:

Proposal 1: When an existing company absorbs another existing company.
Proposal 2: When a merger results in the cessation of business.
Proposal 3: When a business is sold or transferred.

Required:

As the company’s Tax Consultant, submit a report to the Managing Director explaining the following:

Tax implications when an existing company absorbs another existing company.
(5 Marks)
Tax implications when a merger results in the cessation of business.
(3 Marks)
Tax implications when a business is sold or transferred.
(3 Marks)
The powers of the Federal Inland Revenue Service (FIRS) on issues concerning mergers and acquisitions of companies.
(4 Marks)

Total: 15 Marks

Answer

Find Related Questions by Tags, levels, etc.

Tags: Asset Transfer, Business Cessation, Capital Gains Tax (CGT), Compliance, Corporate Restructuring, FIRS Authority, Merger and Acquisition Tax Implications, Stamp Duty, Tax Reliefs, VAT
Level: Level 3

Topic: Taxation and Corporate Governance
Series: NOV 2022

AFM – Nov 2017 – L3 – Q5c – E: Corporate Reconstruction and Reorganisation

Discusses four problems associated with management buy-outs (MBOs).

Question

Required:
Explain FOUR problems associated with Management Buy-Outs. (4 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Corporate Restructuring, Financing MBOs, Management buy-outs, MBO challenges
Level: Level 3

Topic: Corporate reconstruction and reorganisation
Series: NOV 2017

AFM – Nov 2018 – L3 – Q4 – Financial reconstruction

Explain the concept of EVA, calculate EVA and NOPAT for 2016 and 2017, and distinguish between spin-offs and sell-offs.

Question

Jabesh Company limited income statements for the years 2016 and 2017 are provided below:

Additional information is as follows:

The allowance for doubtful debts was GH¢300,000 at 1 January 2016, GH¢250,000 at 31 December 2016, and GH¢350,000 at 31 December 2017.
Research and development costs of GH¢500,000 were incurred during each of the years 2016 and 2017 on Project Z. These costs were expensed in the income statement, as they did not meet the requirements of financial reporting standards for capitalization. Project Z is not complete yet.
At the end of 2015, the company had completed another research and development project, Project X. Total expenditure on this project had been GH¢1,500,000, none of which had been capitalized in the financial statements. The product developed by Project X went on sale on 1 January 2016, and the product was a great success. The product’s lifecycle was only two years, so no further sales of the product are expected after 31 December 2017.
The company incurred non-cash expenses of GH¢15,000 in both years.
Capital employed (equity plus debt) per the statement of financial position was GH¢33,500 at 1 January 2016 and GH¢37,000 at 1 January 2017.
The pre-tax cost of debt was 5% in each year. The estimated cost of equity was 12% in 2016 and 14% in 2017. The rate of corporate tax was 25% during both years.
The company’s capital structure was 60% equity and 40% debt.
There was no provision for deferred tax.

Required:
a) Explain what the directors meant by Economic Value Added (EVA). (2 marks)

b) Calculate the company’s Economic Value Added (EVA) for the years ended 2017 and 2016. (5 marks)

c) Calculate the Net Operating Profit After Tax (NOPAT) for the years ended 2017 and 2016. (6 marks)

d) Explain spin-offs and sell-offs, and identify THREE (3) reasons for spin-offs. (7 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Capital Employed, Corporate Restructuring, Economic Value Added (EVA), Net Operating Profit After Tax (NOPAT), Spin-offs
Level: Level 3

Topic: Financial reconstruction
Series: NOV 2018

BCL – Mar 2024 – L1 – Q5d – Legal Implications Relating to Companies in Difficulty or in Crisis

Distinguish between "Arrangement" and "Amalgamation" in company law.

Question

Distinguish between “Arrangement” and “Amalgamation” in Company Law. (3 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Amalgamation, Arrangement, Companies Act, Company Law, Corporate Restructuring
Level: Level 1

Topic: Legal implications relating to companies in difficulty or in crisis
Series: MAR 2024

Question Tag: Corporate Restructuring

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AT – Nov 2022 – L3 – Q5 – Taxation and Corporate Governance

AFM – Nov 2017 – L3 – Q5c – E: Corporate Reconstruction and Reorganisation

Discusses four problems associated with management buy-outs (MBOs).

AFM – Nov 2018 – L3 – Q4 – Financial reconstruction

Explain the concept of EVA, calculate EVA and NOPAT for 2016 and 2017, and distinguish between spin-offs and sell-offs.

BCL – Mar 2024 – L1 – Q5d – Legal Implications Relating to Companies in Difficulty or in Crisis

Distinguish between "Arrangement" and "Amalgamation" in company law.

AT – Nov 2022 – L3 – Q5 – Taxation and Corporate Governance

AFM – Nov 2017 – L3 – Q5c – E: Corporate Reconstruction and Reorganisation

Discusses four problems associated with management buy-outs (MBOs).

AFM – Nov 2018 – L3 – Q4 – Financial reconstruction

Explain the concept of EVA, calculate EVA and NOPAT for 2016 and 2017, and distinguish between spin-offs and sell-offs.

BCL – Mar 2024 – L1 – Q5d – Legal Implications Relating to Companies in Difficulty or in Crisis

Distinguish between "Arrangement" and "Amalgamation" in company law.

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Question Tag: Corporate Restructuring

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AT – Nov 2022 – L3 – Q5 – Taxation and Corporate Governance

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AFM – Nov 2017 – L3 – Q5c – E: Corporate Reconstruction and Reorganisation

Discusses four problems associated with management buy-outs (MBOs).

You're reporting an error for "AFM – Nov 2017 – L3 – Q5c – E: Corporate Reconstruction and Reorganisation"

AFM – Nov 2018 – L3 – Q4 – Financial reconstruction

Explain the concept of EVA, calculate EVA and NOPAT for 2016 and 2017, and distinguish between spin-offs and sell-offs.

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BCL – Mar 2024 – L1 – Q5d – Legal Implications Relating to Companies in Difficulty or in Crisis

Distinguish between "Arrangement" and "Amalgamation" in company law.

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AT – Nov 2022 – L3 – Q5 – Taxation and Corporate Governance

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AFM – Nov 2017 – L3 – Q5c – E: Corporate Reconstruction and Reorganisation

Discusses four problems associated with management buy-outs (MBOs).

You're reporting an error for "AFM – Nov 2017 – L3 – Q5c – E: Corporate Reconstruction and Reorganisation"

AFM – Nov 2018 – L3 – Q4 – Financial reconstruction

Explain the concept of EVA, calculate EVA and NOPAT for 2016 and 2017, and distinguish between spin-offs and sell-offs.

You're reporting an error for "AFM – Nov 2018 – L3 – Q4 – Financial reconstruction"

BCL – Mar 2024 – L1 – Q5d – Legal Implications Relating to Companies in Difficulty or in Crisis

Distinguish between "Arrangement" and "Amalgamation" in company law.

You're reporting an error for "BCL – Mar 2024 – L1 – Q5d – Legal Implications Relating to Companies in Difficulty or in Crisis"

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