Deferred tax and prior year acquisitions

November 2002
Accountancy;Nov2002, Vol. 130 Issue 1311, p96
Trade Publication
Given the situation that a company is implementing FRS 19, Deferred Tax, for its December 2002 financial statements, the article discusses implications for acquisitions it made prior to the current year. In common with most new accounting standards, FRS 19 requires retrospective application. This requires the company to assess the deferred tax position of acquisitions undertaken in prior periods in two areas, restatement of partial provision to full and removal of deferred tax effects of fair value adjustments, for instance, deferred tax on adjustments to recognise property at its market value on acquisition. The FRS is, however, silent as to whether the adjustment should be made against goodwill or against opening reserves. If goodwill or opening reserves were to be adjusted, it would have to be by the amount relevant at the acquisition date. This is so, even though the deferred tax amount established as at the date of acquisition might by now have been paid or recovered.


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