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Net deferred tax liability arising on acquisition of entity S 60
(Rs150,000 @ 40%)
Purchase consideration 1,500
Less: Fair values of entity S’s identifiable assets and 1,070
liabilities (excluding deferred tax)
Deferred tax liability (60) (1,010)

Goodwill arising on acquisition 490

Note: Since, the tax base of the goodwill is nil, taxable temporary difference of Rs 4,90,000 arises on goodwill.
However, no deferred tax is recognised on the goodwill. The deferred tax on other temporary differences arising

on acquisition is provided at 40% and not 30%, because taxes will be payable or recoverable in entity S’s tax
jurisdictions when the temporary differences will be reversed.

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