To understand the impact of a nontaxable exchange, consider an example of the acquisition of Book Company for $1,500,000. The consideration was 50,000 shares of $1 par value shares of the acquirer...

To understand the impact of a nontaxable exchange, consider an example of the acquisition of Book Company for $1,500,000. The consideration was 50,000 shares of $1 par value shares of the acquirer company. The market value of an acquirer share was $30. The tax rate is 40%. Fair values are compared to the tax basis of Book Company as shown below.

While the DTL is recorded as a single amount, each component would be realized separately. The amount applicable to accounts payable would be realized as the accounts are collected; the amount applicable to inventory would be realized when the inventory is sold. The amounts applicable to the land would be deferred until the land is sold. All other amounts are amortized over the life of the accounts to which the DTA/DTL pertains.