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Hi tutors
Following my previos post here
https://opentuition.com/topic/recognising-deferred-tax-liability-in-business-combinations/
I want to know how and when is Deferred tax de-recognised after the fair value adjustment of net assets that decreases goodwill
would deferred tax be debited and give raise to tax liability once the subsidiary is sold or when does assets that were adjusted to fair value are sold? or in both cases? I have not seen this in reality so clarification and a few journals to get the picture would be very helpful
Thanks 🙂
Daniel
I would have thought that it would be derecognised on the sale of the asset subject to the fair value adjustment (unless sub was sold first!).
Dr DT liability Cr CT liability
Hi Stephen thanks
So, let’s suppose we sell sub, we first calculate gain loses as
Credit net assets at fair value 30
Credit goodwill 10
Debit cash 50
Credit gain 10If we revalued say from 20 to 30 when sub was bought at tax rate of 10% we have
DT liability for 1
-When we sell sub then have
Debit DT 1
Income tax expense 1 for the sale now
Credit tax liability for 2 which is the DT plus tax for the saleIs that correct?
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