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Hi all
Reviewing IAS 12 deferred tax, when one calculates goodwill in combinations, the re-valuation of assets to fair value creates a deferred tax liability when tax base is different
How would the entry be in the books?
Debit goodwill
Credit deferred tax liability?If so, Why this entry? If we have booked goodwill already when calculating investment less fair value of net assets… doesn’t the entry overstate goodwill
Thanks
Example
Cost of investment 100
CA of net assets (PPE) 60
Fair value of PPE 90
Tax rate 30%
Journals
1. Fair value adjustment
Dr PPE Cr Goodwill 30
(90 – 60)
2. DT
Dr Goodwill Cr DT liability 9
(30% x 30)
Final goodwill figure = 100 – 81 = 19
(The NA are 90 minus 9 = 81)
DT IS PART OF THE GOODWILL CALCULATION NOT AN AFTERTHOUGHT
🙂
Hi Stephen
Sorry for late reply and thanks so much
I didn’t know that as i was taught to calc goodwill first and then do journals like
debit goodwill, credit NCI, credit cash (paid cash), debit net assets
So what are the correct journals? first fair value adj crediting goodwill, then the debit for DT?
Perhaps can you show me what journals would you make that involve debiting and crediting goodwill?
Thanks so much
DanAlso
If we have 10 (cost less fair value) goodwill then credit it by 30 and debit 9, would not it be negative or the first journal before anything is goodwill 40 debit, debit net assets 60, credit cash 100?
Then the others you suggested for fair value adj and DT?
No need to write journals in exam unless asked. In fact, if you write them at other times the marker will be cross.
I was writing DR and CR to show you what goes up and down.
So:
1. FV – PPE UP meaning that the net goodwill figure will be LOWER.
2. DT – DT liability UP meaning that the net goodwill figure will be HIGHER.
(your other question won’t happen – it suggests that someone has the fair value adjustment wrong – negative goodwill is very unusual in practice)
Hi Stephen thanks
just for my knowledge (not referred to exams) but I would like to know the entries
First one would be
debit Goodwill
debit Net assets at book value
credit cash
credit NCIsecond would be
debit net asset for fair value adj
credit goodwill (because when net asset increase goodwill reduces)third would be
debit goodwill (because DT is a liability and reduces net assets hence goodwill increase)
credit D tax for the tax rate times fair value adjare these correct? I might have another question later if you don’t mind
thanks
Daniel
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