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I have a question on Hedra , Salvador and Paragon .but my question is on the note 3 .it says At the date of acquisition Salvador had a tax relieve of 40 million from previous yr. Salvador had not accounted for these as deferred tax asset as it directors did not believe the company would be sufficiently profitable in the near future , however, the directors of Hedra were confident that this losses would be utilised and accordingly they should be recognized as deferred tax asset. By 30 September 2005 the group had not utilized any of the losses. The income tax rate is 25%. The company was acquired 1st Oct 2004 and yr end is Sept 30 , 2005 . Pls whats the accounting treatment , does it for the part of the net asset at acquisation , should I iqnore the 25% and how do go about solving it pls .thanks .
It’s the revaluation to fair value of an asset as at date of acquisition!
The asset in the subsidiary’s records is stated at $zero and its fair value is $40 million
Now, have you copied the question correctly? Is that an unrecorded deferred tax asset of $40 million or is it the case that the subsidiary’s carrying value of net assets is $40 million lower than the tax base
If it’s the latter case then we need to multiply that $40 million by the tax rate to arrive at a deferred tax asset of 25% x $40 million = $10 million and that figure (or $40 million if your first post is correct and it really is ‘$40 million tax relieve’) should be included as an asset in the ‘fair value of subsidiary net assets as at date of acquisition’
OK?
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