Page 9 - 2. COMPILER QB - INDAS 12

SOLUTION

Calculation of Net assets acquired (excluding the effect of deferred tax liability):

Net Assets Acquired Tax Base Fair Values
Rs. ‘000 Rs. ‘000
Land and Building 500 700

Property, Plant & Equipment 200 270
Inventory 100 80
Account Receivable 150 150

Cash & Cash Equivalents 130 130
Total Assets 1,080 1,330

Accounts Payable -160 -160
Retirement Benefits Obligations - -100
Net Assets before DTL 920 1,070

Calculation of deferred tax arising on acquisition of entity S

Rs. ‘000 Rs. ‘000
Fair Value of S’s Identifiable Net Assets 1,070
(Excluding Deferred Tax)

Less – Tax Base -920
Temporary Differences arising on acquisition 150
Net DTL arising on acquisition of entity S (1,50,000 x 40%) 60

Calculation of goodwill
Purchase Consideration 1,500

Less – Fair Value of entity S’s Identifiable Net Assets 1,070
(excluding DT)
Less – DTL -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.

*Goodwill gives rise to a Permanent Difference.

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