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IAS 12Workpapers (Step 4 of 5)

Workpaper template

Step 4 of 5

IAS 12 Income Taxes — wording before IFRS 18Applicable today

Applies to annual periods beginning before January 1, 2027.

WorkpaperIAS 12 — Income TaxesL3 · L4

Group deferred tax

6 missions14 sections to document55 min
Prepared by
AI-assisted draft
Reviewed by
Not reviewed — human review required
Status
Published

Objective of the workpaper

At group level, compute the deferred tax on the fair value adjustments of a business combination and its effect on goodwill, deal with acquired tax benefits recognised after the acquisition, assess the deferred tax on investments (control of the timing of reversal, planned distributions) and on share-based payments (portion in profit or loss and in equity), then the offsetting of deferred tax assets and liabilities; post the entries and prepare the disclosures.

14 sections · 59 blocks · 14 calculations · 6 entries

  • IAS 12 §19
  • IAS 12 §21
  • IAS 12 §21A
  • IAS 12 §21B
  • IAS 12 §32A
  • IAS 12 §66
  • IAS 12 §67
  • IAS 12
  • IAS 12 §2
  • IAS 12 §18
  • IAS 12 §38
  • IAS 12 §39
  • IAS 12 §40
  • IAS 12 §42
  • IAS 12 §44
  • IAS 12 §68A
  • IAS 12 §68B
  • IAS 12 §68C
  • IAS 12 §71
  • IAS 12 §73
  • IAS 12 §74
  • IAS 12 §75
  • IAS 12 §76
  • IAS 12 §81
  • IAS 12

Work this workpaper as a mission

Each case that uses this template opens in the mission workspace: data, analysis, calculation, entries, conclusion and review, with your progress saved.

6 instances from the cases: the calculations and entries below are run by the calculation engine.

File and entity
Acquisition of a foreign subsidiary: deferred tax on the combination, goodwill, investment, share option plan and offsetting
Case tasks documented here
  • Which temporary differences arise from the combination? Does goodwill give rise to deferred tax?
  • Calculate the deferred tax on the fair value adjustments.
  • Calculate goodwill at the acquisition date, including deferred tax.
  • How should Kelmora's losses recognised after the acquisition and Sendrevia's losses be treated?
  • Calculate the goodwill adjustment for the acquired losses and the closing goodwill.
  • Calculate the difference relating to the investment in Kelmora and the part with no deferred tax.
  • Calculate the tax on the planned distribution.
  • Calculate the estimated future deduction and the deferred tax asset of the share option plan.
  • Split this asset between profit or loss and equity.
  • Determine the offset presentation of deferred taxes at 31 December 20X5.
  • Record the entries for 20X5.
1

Inputs

Inputs

  • Group structure, taxable entities, taxation authorities and distribution policy of the subsidiaries

    TextRequired

    SENDREVIA_ACQUIRES_100_PERCENT_OF_KELMORA

  • Acquisition date

    Date

    20X5-04-01

  • Rate expected on reversal, enacted or substantively enacted at the reporting date (%)

    Number

    20 %

  • Consideration transferred

    Number

    18,000,000

  • Identifiable net assets at fair value, before deferred tax of the combination

    Number

    14,500,000

    Case data: measurement of the combination under IFRS 3, outside this model. Teaching assumption: non-controlling interests ignored.

  • Fair value adjustments with no adjustment of the tax bases (net taxable differences)

    Number

    3,500,000

  • Deferred tax assets of the acquiree recognised in the combination

    Number

    0

  • Consolidated carrying amount of the investment (share of net assets, including goodwill)

    Number

    19,800,000

  • Tax base of the investment

    Number

    18,000,000

  • Distribution expected in the foreseeable future

    Number

    1,000,000

  • Tax or withholding rate applicable to the distribution (%)

    Number

    5 %

  • Future tax deduction estimated at the reporting date for the services received (share-based payments)

    Number

    Case data: basis of the tax deduction (under the tax law) and proportion of services received. IFRS rule: estimate on the information available at the reporting date (para. 68B).

  • Cumulative share-based remuneration expense recognised

    Number

  • Deferred tax assets before offsetting (same authority, entities concerned)

    Number

    200,000

  • Deferred tax liabilities before offsetting (same authority, entities concerned)

    Number

    700,000

2

Supporting evidence

Evidence

  • Evidence obtained and referenced (category, document reference)

    EvidenceRequired

3

Business combination and goodwill

Analysis

IAS 12 §19IAS 12 §21IAS 12 §21AIAS 12 §21BIAS 12 §32AIAS 12 §66

  • Points examined

    Checklist

    • Assets and liabilities at fair value without equivalent tax adjustment: temporary differences
    • Deferred tax of the combination: effect on goodwill or on the bargain purchase gain
    • Non-deductible goodwill: no deferred tax liability on initial recognition
    • Later reductions of that unrecognised liability: not recognised
    • Taxable difference relating to goodwill not arising from its initial recognition: liability recognised
    • Goodwill below its tax base: deferred tax asset in the accounting for the combination, if profit is probable
4

Tax benefits after the acquisition

Analysis

IAS 12 §67IAS 12

  • Acquired deferred tax benefit, not recognised at acquisition, recognised afterwards

    Number

    200,000

  • Carrying amount of the related goodwill

    Number

    4,200,000

  • Increase in the acquirer's own deferred tax asset due to the combination

    Number

  • Points examined

    Checklist

    • Acquirer's own asset that has become recoverable: recognised outside the accounting for the combination
    • Acquired benefit recognised within the measurement period on facts existing at acquisition: reduction of goodwill
    • Excess beyond goodwill reduced to zero, and other benefits: in profit or loss
5

Investments

Analysis

IAS 12 §2IAS 12 §18IAS 12 §38IAS 12 §39IAS 12 §40IAS 12 §42IAS 12 §44

  • Points examined

    Checklist

    • Consolidated carrying amount of the investment different from its tax base
    • Parent controlling the distribution policy: timing controlled; no liability if no foreseeable distribution
    • Associate: liability recognised, unless an agreement excludes distribution in the foreseeable future
    • Liability not recognised only if the entity controls the timing of reversal and reversal is not probable in the foreseeable future
    • Deductible difference: asset only if reversal is foreseeable and taxable profit available
    • Withholding taxes on distributions from subsidiaries, associates or joint arrangements: income taxes
6

Share-based payments

Analysis

IAS 12 §68AIAS 12 §68BIAS 12 §68C

  • Points examined

    Checklist

    • Tax deduction different from the cumulative expense, possibly obtained later (tax law of the case)
    • Future deduction unknown: estimated on the information available at the reporting date
    • Deduction exceeding the cumulative expense: tax on the excess directly in equity
    • Remainder of the tax effect: in profit or loss
7

Offsetting

Analysis

IAS 12 §71IAS 12 §73IAS 12 §74IAS 12 §75IAS 12 §76

  • Points examined

    Checklist

    • Legally enforceable right to set off current tax assets and liabilities
    • Taxes levied by the same taxation authority
    • Same taxable entity, or different entities intending to settle net or simultaneously
    • Current tax of two group entities: offset only with a right to a single net payment and the intention
    • Right or intention limited to certain periods: detailed scheduling possibly required
8

Combination, investments, share-based payments and offsetting

Calculations

IAS 12 §19IAS 12 §39IAS 12 §66IAS 12IAS 12 §68BIAS 12 §68CIAS 12 §74

  • Deferred tax liability on the fair value adjustments

    Calculation

    700,000

    Fair value adjustments with no adjustment of the tax bases (net taxable differences) ; Rate expected on reversal, enacted or substantively enacted at the reporting date (%)

  • Goodwill taking into account the deferred tax of the combination

    Calculation

    4,200,000

    Consideration transferred ; − Identifiable net assets at fair value, before deferred tax of the combination ; Deferred tax liability on the fair value adjustments ; − Deferred tax assets of the acquiree recognised in the combination

    IFRS rule: the deferred tax of the combination affects goodwill (para. 66). Simplified mechanics: consideration − net assets at fair value + deferred tax liabilities − deferred tax assets of the combination.

  • Reduction of goodwill (acquired benefit in the measurement period)

    Calculation

    200,000

    Acquired deferred tax benefit, not recognised at acquisition, recognised afterwards ; Carrying amount of the related goodwill

  • Excess of the acquired benefit beyond goodwill (in profit or loss)

    Calculation

    0

    Acquired deferred tax benefit, not recognised at acquisition, recognised afterwards ; − Reduction of goodwill (acquired benefit in the measurement period)

    Input convention: the calculation map provides no subtraction at this step; enter acquired benefit − reduction of goodwill. The sum check and the balance of the entry verify the amount.

  • Taxable difference relating to the investment

    Calculation

    1,800,000

    Consolidated carrying amount of the investment (share of net assets, including goodwill) ; − Tax base of the investment

  • Deductible difference relating to the investment

    Calculation

    0

    Consolidated carrying amount of the investment (share of net assets, including goodwill) ; − Tax base of the investment

  • Tax on the expected distribution

    Calculation

    50,000

    Distribution expected in the foreseeable future ; Tax or withholding rate applicable to the distribution (%)

    Case data: tax or withholding regime for distributions and expected amount. Teaching assumption: the liability is measured on the expected distribution.

  • Deferred tax liability recognised on the investment (0 if exception)

    Number

    50,000

  • Deferred tax asset on share-based payments

    Calculation

    Future tax deduction estimated at the reporting date for the services received (share-based payments) ; Rate expected on reversal, enacted or substantively enacted at the reporting date (%)

  • Cumulative expense × rate (ceiling of the portion in profit or loss)

    Calculation

    Cumulative share-based remuneration expense recognised ; Rate expected on reversal, enacted or substantively enacted at the reporting date (%)

    Model convention: same mechanics (amount × rate) as the asset; only the base changes.

  • Portion of the tax benefit in profit or loss

    Calculation

    Deferred tax asset on share-based payments ; Cumulative expense × rate (ceiling of the portion in profit or loss)

  • Portion of the tax benefit in equity (excess)

    Calculation

    0

    Deferred tax asset on share-based payments ; − Portion of the tax benefit in profit or loss

    IFRS rule: tax on the excess of the deduction over the cumulative expense directly in equity (para. 68C). Input convention: asset − portion in profit or loss; verified by the sum check.

  • Net deferred tax asset presented (if offset)

    Calculation

    0

    Deferred tax assets before offsetting (same authority, entities concerned) ; − Deferred tax liabilities before offsetting (same authority, entities concerned)

  • Net deferred tax liability presented (if offset)

    Calculation

    500,000

    Deferred tax assets before offsetting (same authority, entities concerned) ; − Deferred tax liabilities before offsetting (same authority, entities concerned)

  • Amount offset (the lower of the two balances; 0 if the criteria are not met)

    Calculation

    200,000

    Deferred tax assets before offsetting (same authority, entities concerned) ; Deferred tax liabilities before offsetting (same authority, entities concerned)

    IFRS rule: offset if, and only if, the conditions of para. 74 are met. Input convention: the lower of the two balances, 0 otherwise; the entry is a presentation entry.

9

Journal entries

Entries

  • Deferred tax of the combination, against goodwill

    Entry

    AccountDebitCredit
    Goodwill700,000
    Deferred tax liability700,000

  • Acquired benefit recognised in the measurement period

    Entry

    AccountDebitCredit
    Deferred tax asset200,000
    Goodwill200,000

  • Acquirer's own asset that has become recoverable

    Entry

    Debit Deferred tax asset ← Increase in the acquirer's own deferred tax asset due to the combination ; Credit Deferred tax income ← Increase in the acquirer's own deferred tax asset due to the combination

  • Deferred tax liability on the investment

    Entry

    AccountDebitCredit
    Deferred tax expense50,000
    Deferred tax liability50,000

  • Deferred tax asset on share-based payments

    Entry

    Debit Deferred tax asset ← Deferred tax asset on share-based payments ; Credit Deferred tax income ← Portion of the tax benefit in profit or loss ; Credit Share-based payment reserve ← Portion of the tax benefit in equity (excess)

    Teaching assumption: first recognition of the asset (no opening balance).

  • Presentation offset

    Entry

    AccountDebitCredit
    Deferred tax liability200,000
    Deferred tax asset200,000
10

Group positions

Judgment

IAS 12 §21IAS 12 §21BIAS 12 §32AIAS 12 §39IAS 12 §40IAS 12 §42IAS 12 §44IAS 12 §66IAS 12 §67IAS 12IAS 12 §68AIAS 12 §68BIAS 12 §68CIAS 12 §71IAS 12 §73IAS 12 §74IAS 12 §76

  • Treatment of the tax benefit related to the combination

    Judgment

    Acquired benefit in the measurement period: reduction of goodwill, excess in profit or loss

    In the accounting for the combination (goodwill) / Acquirer's own asset: outside the combination, in profit or loss / Acquired benefit in the measurement period: reduction of goodwill, excess in profit or loss / Other acquired benefit recognised later: in profit or loss / Not applicable to this instance

    Optional judgement (Not applicable outside a combination). Professional judgement: origin of the benefit (acquirer or acquiree), date and nature of the new information (measurement period).

  • Rationale: facts relied on, analysis, alternative rejected

    Text

    RULING_IS_NEW_INFORMATION_ON_FACTS_AT_ACQUISITION_DATE

  • Deferred tax on goodwill

    Judgment

    No liability (initial recognition of goodwill)

    No liability (initial recognition of goodwill) / Liability on the difference arising after initial recognition / Asset: goodwill below its tax base / Not applicable to this instance

    Optional judgement: an instance documents only the group topics it deals with; choose Not applicable for the others.

  • Rationale: facts relied on, analysis, alternative rejected

    Text

    GOODWILL_NOT_DEDUCTIBLE_TAX_BASE_NIL

  • Deferred tax on the investment

    Judgment

    Reversal foreseeable (planned distribution): liability recognised

    Timing controlled, reversal not probable in the foreseeable future: no liability / Reversal foreseeable (planned distribution): liability recognised / Timing not controlled: liability recognised / Not applicable to this instance

    Optional judgement (Not applicable with no investment). Professional judgement: control of the timing of reversal (distribution policy, agreements) and probability of reversal in the foreseeable future (para. 39).

  • Rationale: facts relied on, analysis, alternative rejected

    Text

    DISTRIBUTION_DECIDED_FOR_20X6_REMAINDER_REINVESTED

  • Allocation of the tax benefit of share-based payments

    Judgment

    Not applicable to this instance

    Deduction not exceeding the cumulative expense: all in profit or loss / Deduction exceeding the cumulative expense: excess in equity / Not applicable to this instance

    Optional judgement: an instance documents only the group topics it deals with; choose Not applicable for the others.

  • Rationale: facts relied on, analysis, alternative rejected

    Text

  • Presentation of deferred tax balances

    Judgment

    Offset: same entity and same authority

    Offset: same entity and same authority / Offset: different entities settling net or simultaneously / Gross presentation: criteria not met / Not applicable to this instance

    Optional judgement (Not applicable with no balances to present). Professional judgement based on the tax law of the case (right of set-off, group regime) and on the documented settlement intentions.

  • Rationale: facts relied on, analysis, alternative rejected

    Text

    SAME_TAXABLE_ENTITY_SAME_AUTHORITY_RIGHT_OF_SET_OFF

11

Conclusion

Conclusion

  • Consolidated deferred tax finalised, presentation and points submitted to the reviewer

    ConclusionRequired

12

Financial statement impact

FS impact

  • Impact by caption, derived from the entries above (the Notes line refers to the disclosures)

    TableRequired

13

Items passed on to the note

Disclosure

IAS 12 §81IAS 12

  • Information prepared

    ChecklistRequired

    • Aggregate amount of the differences relating to investments with no deferred tax liability recognised
    • Amount of the unrecognised liabilities, where practicable (encouraged)
    • Deferred tax assets and liabilities recognised, by type of difference
14

Normative references

References

  • Paragraphs cited in this workpaper (verification status shown from the register)

    References

15

Checks and financial statement impact

  • Total asset = portion in profit or loss + portion in equityNot evaluated
  • Acquired benefit = reduction of goodwill + excess in profit or lossPass
  • The business combination entry balancesPass
  • The acquired benefit entry balancesPass
  • The acquirer's asset entry balancesNot evaluated
  • The investment entry balancesPass
  • The share-based payment entry balancesNot evaluated
  • The offset entry balancesPass
Assets
500,000
Liabilities
550,000
Profit or loss
-50,000
OCI
0
Equity
-50,000