Slump sale is basically an act of transferring one business undertaking or multiple business undertakings for a consideration of some lump sum and the process does not assign individual values to each of the liabilities and assets that are to get transferred. This article will discuss about this kind of slump business in details.
Elements of the Slump Sale
The elements given below make up the Sale of the Slump.
- A lump-sum amount that has been paid as consideration
- The Assets and the liabilities which are transferred to the buyer
- Business that is sold on going concern basis
- Sale of the undertaking
Goals of the Slump Sales
The goal of the topic in hand are given below.
- To achieve the regulatory and the tax benefits
- To improve the performance and delivery of the business
- To purge the negative synergy and focus on the positives
Characteristics of Slump Sales
The list given below makes a transfer equivalent to the slump sales.
- A transfer has to be the result of a sale.
- It must have one or multiple numbers of undertakings.
- Sales has to happen for a consideration.
- The value should not be assigned to the individual assets or the liabilities.
Eligibility of the Slump Sales for Taxation
Under the method of the slump sale, the profit or the gains which are obtained from the transfer of the undertakings are eligible for taxing. The gains or the profit that are derived from the sale of the slump in the past years are getting taxed under the Capital Gains which arise from the occurring transfer. There are mainly two types of capital assets. These are:
- Short Term Capital Asset: The undertakings which have been owned for around 36 months or less than that, are called the short term capital assets.
- Long Term Capital Asset: The undertakings which have been owned for around 36 months or more than that, are called the long term capital assets.
The gain or the profit that has been earned from the sale of the slump are eligible to be taxed in accordance with the capital gains and that profit will be viewed as an income accumulated from the transfer of the last year. In this case, the transferred undertaking will be viewed as the capital asset.
When the calculation of the tax is being done, no distinguishing is done between the non-depreciable assets or the depreciable assets or simply the stock. The income earned from the entire sale of the stock and the depreciable assets will be viewed as the capital gain done from one single transaction.
The calculation of the slump sale is done on the basis of the difference between consideration of the sale and the total worth or the value of the undertaking. Typically, the total cost of the transfer along with the cost of the benefit is termed as the net worth. In other words, the difference between the total value of all the assets of the undertaking and the worth of the liabilities as displayed in the account books is called the net worth. The total or the aggregate value of the assets is generally the total sum of the worth of the assets as written with the condition that the depreciation of any asset is involved along with the book value of all the other assets alongside.
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