Question

Gain Corp. and Loss Corp. are both publicly-held corporations, and neither has any shareholder who owns 5 percent of the stock. In the current year, the two corporations are merged, and less than 50 percent of the stock of the merged corporation is owned by individuals who were shareholders of Loss Corp. If Loss Corp. has a net operating loss, describe how it will be deducted in future years.

How does your answer change if, instead of a merger, Gain Corp. acquired all the stock in Loss Corp. and the two corporations filed a consolidated return?

Answer 1

If they are Merged

If Loss Corp.is merged and has a net operating loss at the end of year then the Loss of Loss Corp. will be set off against Gain of Gain corp. provided Gain corp. has net operating gain in its books. If gain corp. also has loss, then the loss will be carried forward for future years to be set off against gain. Losses in the corporation are not to be claimed by individual corporation. Gains are to be distributed to the shareholders as dividends in proportion of their shares held.

If they are consolidated

If gain corp. is consolidated and it acquires all the stock of loss coporation then the entire loss of Loss corp. will come against the profit of gain. If Loss. corp remains with any stock in its book, then it will be paid its value of stock corrosponding to the investment it did for the stock and accordingly capital reserve or goodwill will be created. If it receives more than the value of its share then it will be goodwill for it and for the vice versa case, it will have capital reserve. Also, if it reamins with some stock then its share of loss which remains with it will be transferred to Minority Interest which will be shown under the Consolidated Balance sheet of Gain Corp. If the full stock in loss cop. is transferred then in the return it will be shown as net amount amd nothing will be set off.

Please Note:- The answer is given as per my knowledge is concern. Different opinion can be given