On 1st January, 20X1, H Ltd. acquired all of the share capital of S Ltd. for ₹ 15,00,000. The book values and the fair values of the identifiable…

CA Final · Financial Reporting · MTP · November 2026
On 1st January, 20X1, H Ltd. acquired all of the share capital of S Ltd. for ₹ 15,00,000. The book values and the fair values of the identifiable assets and liabilities of S Ltd. at the date of acquisition are set out below, together with their tax bases in S Ltd.'s tax jurisdictions. Any goodwill arising on the acquisitions is not deductible for tax purposes. The tax rates in H Ltd.'s and S Ltd.'s tax jurisdictions are 30% and 40% respectively. Net assets acquired Book values ₹ '000 Tax base ₹ '000 Fair values ₹ '000 Land and buildings 600 500 700 Property, plant and equipment 250 200 270 Inventory 100 100 80 Accounts receivable 150 150 150 Cash and cash equivalents 130 130 130 Total assets 1,230 1,080 1,330 Accounts payable (160) (160) (160) Retirement benefit obligations (100) - (100) Net assets before deferred tax liability 970 920 (1070) Deferred tax liability on differences between book values and tax bases (₹ 50 @ 40%) (20) 1,070 Net assets at acquisition 950 920 1,070 Calculate deferred tax arising on acquisition of S Ltd. and goodwill based on the above information.

Suggested Answer and Working Notes:

Calculation of deferred tax arising on acquisition of S Ltd. and goodwill ₹'000 ₹'000 Fair values of S Ltd.'s identifiable assets and liabilities (excluding deferred tax) 1,070 Less: Tax base (920) Temporary difference arising on acquisition 150 Net deferred tax liability arising on acquisition of S Ltd. (₹ 1,50,000 @ 40%)– replaces book deferred tax 60 Purchases consideration 1,500 Fair values of S Ltd.'s identifiable assets and liabilities (excluding deferred tax) 1,070 Deferred tax (60) 1,010 Goodwill arising on acquisition 490 The tax base of the goodwill is nil, so a taxable temporary difference of ₹4,90,000 arises on the goodwill. No deferred tax is recognised on the goodwill. The deferred tax on other temporary differences arising on acquisitions is provided at 40% (not 30%), because taxes will be payable or recoverable in S Ltd.'s tax jurisdictions when the temporary differences are reversed.

Topics: Ind AS 12

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