What is transacted? The long-term producing assets (not the usual products) of the company!
In asset transactions, the very producing fixed assets are sold to the third parties.
There are two types of asset transactions:
In asset sale, every asset is sold individually. That is, if many assets are sold, individual prices are attached to each of the assets. The selling company has to collect the indirect tax (GST) on the sales from the buyer. The proceeds of sale from asset sale are shown as other income in the profit and loss statement; and corporate income tax is paid on it. Sometimes the intangible assets of the company such as goodwill, network, guarantee, brand, network also can be transacted.
When is asset sale carried out? An asset sale can be carried out to raise emergency funds or to replace old technology, machines with new ones.
Slump sale means selling the complete set of assets of a business which can produce a product in independent way as if it is an assembly, without assigning any individual price to any machine tool or any equipment. This should also include transferring (making available) the human resources. But the name of the selling company or the legal entity is retained by the original owner. Sometimes, a production line for a product vertical can be separated and sold under slump sale. No GST has to be paid on slump sale. Instead of income tax, capital gains tax has to be paid on slump sale.
When is slump sale considered? Slump sale is carried out to spin off a vertical, or to get rid of a product, or to get rid of a geographical production centre, etc.
The machine tools, designs & customized, speciality, non-revenue strategic assets of a company do not have a ready market. Apohan carries out the following work:
Determination of assets to be sold
Treatment of slump sale
Identification of buyers
Asset sale purchase contract
Computation of capital gains tax