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ACCA Strategic Professional · Strategic Business Reporting (International) · Income taxes

Kappa acquires a subsidiary and, in the post-acquisition period, a deferred tax asset not recognised at acquisition becomes probable of recovery because of new information about facts existing at the acquisition date, 8 months after the date. What is the correct treatment?

The deferred tax asset is recognised as a measurement period adjustment, reducing goodwill. The new information relates to conditions existing at the acquisition date and arises within the 12-month measurement period, so IAS 12 requires goodwill adjustment rather than a profit or loss credit.

  1. ARecognise it in other comprehensive income
  2. BAdjust goodwill within the measurement period, as a measurement period adjustmentCorrect
  3. CRecognise it in profit or loss and leave goodwill unchanged in all cases
  4. DRestate the prior year consolidated financial statements for the tax effect only

Explanation

Under IAS 12, acquired deferred tax benefits recognised within the measurement period that result from new information about facts and circumstances at the acquisition date reduce goodwill. The 8 months falls within the 12-month maximum measurement period. Changes after that period, or not related to such information, go to profit or loss.

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