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Hi Mike,
I read this sentence off of BPP study text:
Current tax is recognized as income or expense and included in the net profit or loss for the period, except in this case:“Tax arising from a business combination is treated differently (tax assets or liabilities of the acquired subsidiary will form part of the goodwill calculation”
Which I just realized I’ve never actually done a consolidation question where a subsidiary has a deferred tax liability in its SOFP, except in the Pyramid Co (June 2012) question, where the subsidiary had an UNRECORDED deferred tax liability of $1m which was unchanged at the year end. The deferred tax of $1m was subsequently included in the calculation of goodwill.
But that was an unrecorded liability, what happens if it’s a recorded liability? Should it be included as well?
Hope you could help me on this, thank you 🙂
If it’s a recorded liability, the rules of double entry take over! Because it’s recorded as a liability the retained earnings must have been reduced so, because retained earnings are an integral element of the goodwill calculation, the recorded deferred tax is already taken into account when arriving at the figure for ‘Fair value of S net assets at date of acquisition’
OK?
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