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Dear Chris,
Hope you are fine and thank you for your lectures.Suppose P has 80% of S
parent sells some goods to subsidiary, PUP = 1000 and
tax rate = 10%.So we have to recognise 200 as a deferred tax asset which is fine for me.
But my question is about the Cr entry. Should it be for the SELLER or BUYER.
I mean which of the following is correct?1-
Dr Deferred Tax asset 100
Cr RE 100OR
2 –
Dr Deferred Tax asset 100
Cr RE 80
Cr NCI 20I myself think the Cr entry should be for the entity who holds the inventory, the BUYER. Because it is the BUYER whose carrying value of it inventory is less than its tax base. So I think in the above example because the subsidiary is the BUYER, so the 2nd entry is correct. Am I correct?
Thank you
Sorry, there was a typing mistake in the above post. we have to recognise $100 as deferred tax asset …
Deferred tax must be recognised at the tax rate of the BUYER. So I would vote for Number 2!
Thank you very much for your answer.
But unfortunately I just checked a question from ACCA and its answer confused me! They have deducted the deferred tax from the seller!! 🙁
I mean according to ACCA, the PUP is recognised net of deferred tax. So say PUP is 1000 and tax rate is 10% , then they have deducted 900 from the SELLER. so it means they are adding the deferred tax to the seller too and this is really confusing for me! Why? I can’t understand at all 🙁
No – I would stick with the buyer personally.
Mr Mike suggested in this blog 6 years ago that he thinks it’s the seller.
I can’t see anything in the standard.
A marker would give credit either way. Bear in mind that you get full marks for approach on calculations – they no longer have to be right! It’s just the explanations that get people through.
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