Case Study on Treatment of Deferred Tax at the Time of Business Purchase as per Ind AS 12

Para 66 of Ind AS 12, Income Taxes, states that temporary differences may arise in a business combination. An entity recognizes any resulting deferred tax assets (to the extent that they meet the recognition criteria given in Ind AS 12) or deferred tax liabilities as identifiable assets and liabilities at the acquisition date in accordance with Ind AS 103. Consequently, those deferred tax assets and deferred tax liabilities affect the amount of goodwill or the bargain purchase gain the entity recognizes. However, an entity does not recognize deferred tax liabilities arising from the initial recognition of goodwill.

This story discusses a case study on the treatment of deferred tax at the time of purchase of business with appropriate journal entries.

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