Consolidation as per Indas deferred taxes standard

Hey Yasaswi! Great question on the interplay of consolidation under IND AS/IFRS and income taxes, especially deferred taxes during acquisitions.

Here’s a concise explanation:

Deferred Taxes and Acquisitions (IND AS 12 / IAS 12 - Income Taxes):

• When you consolidate a subsidiary acquired in a business combination, IND AS 12 requires recognition of deferred tax liabilities and assets arising from the temporary differences between the fair values assigned to identifiable assets and liabilities at acquisition and their tax bases.

• For example, if the fair value of an asset recognized on acquisition is higher than its tax base, this gives rise to a deferred tax liability.

• Similarly, if the fair value is lower, a deferred tax asset may arise.

• These deferred tax balances must be recognized at the acquisition date and included in the consolidated financial statements.

• The deferred tax effects do not impact goodwill directly, but they affect the overall purchase price allocation.

• Also, IND AS 12 requires measurement of deferred taxes based on the tax rates expected to apply when the temporary differences reverse.

Key points:

• Deferred tax liabilities/assets related to fair value adjustments on acquisition are recorded in consolidated accounts.

• They reflect timing differences between accounting and tax bases.

• Deferred tax recognition impacts post-acquisition profit or loss and equity.

In summary:
IND AS/IFRS requires identifying deferred tax consequences on the acquisition date for temporary differences arising from fair value adjustments during consolidation. This ensures accurate reflection of tax effects in consolidated financial statements.