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Hi all
IAS 12 says that deferred tax arising from goodwill is prohibited
What does that mean?
I know that for fair valuation of subsidiary net assets, deferred tax might arise
Thanks
It means ignore potential deferred tax implications arising from the existence of goodwill.
The following is a relevant quote on ACCA site-“Theoretically, goodwill gives rise to a temporary difference that would result in a deferred tax liability as it is an asset with a carrying amount within the group financial statements but will have a nil tax base. However, IAS 12 specifically excludes a deferred tax liability being recognised in respect of goodwill”.
Quote came from the following technical article-
Ah thanks so much that helps lots
Basically, we have deferred tax for the revaluation of assets and liabilities of a subsidiary to calcualte goodwill in business combinations but not for goodwill itself – right?
With other temporary differences you adjust for deferred tax but not on goodwill. So that is correct.
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