ACCA Strategic Professional · Strategic Business Reporting (International) · Income taxes
Paragon Group acquires Sable Co. Sable has unused tax losses that did not meet recognition criteria at the acquisition date, so no deferred tax asset was included in the fair value of net assets acquired. Six months after acquisition, within the measurement period, new information about facts existing at the acquisition date shows that recovery was probable. Under IAS 12, how is the resulting deferred tax asset recognised?
The deferred tax asset is recognised with a corresponding adjustment to goodwill. IAS 12 treats benefits recognised within the measurement period, resulting from new information about facts at the acquisition date, as measurement-period adjustments. Later recognition or changes not based on such information go to profit or loss.
- AAs a deferred tax credit in profit or loss with no change to goodwill
- BDirectly in other comprehensive income
- CAs an adjustment to goodwill, because it relates to acquisition-date facts within the measurement periodCorrect
- DAs a reduction of the parent's retained earnings
Explanation
IAS 12 says acquired deferred tax benefits recognised within the measurement period that result from new information about acquisition-date facts reduce goodwill (and any excess creates a bargain gain in profit or loss). Recognition in profit or loss applies to changes after the measurement period or not related to new information about acquisition-date facts.
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