CERTYNEX IFRS ACADEMY

In a purchase price allocation file, the analyst at Lys SA notes a fair value uplift of 400,000 on an acquired building whose tax base is lower, but recognises no deferred tax and calculates goodwill on that basis. What is the error?

Deferred tax must be recognised as an expense of the period and not in goodwill, which reflects the fair values.

Goodwill must be reduced by the deferred tax liability, because that liability lowers the price actually paid to the former owner.

The reasoning is correct: the IFRS 3 exception exempts the acquirer from recognising deferred tax on fair value adjustments.

Deferred tax on the difference has not been recognised: it reduces identifiable net assets and therefore increases goodwill.