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    sarahbing's Avatar
    sarahbing Posts: 5, Reputation: 1
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    #1

    Nov 8, 2013, 02:40 PM
    Different treatment for tax effect in Business Combination and Consolidation
    In business combination, even the assets in subsidiary's balance sheet are in carrying amount and later on provided fair value, we only record the fair value regardless the tax effect on them (as revaluation of the assets, tax effect should rise because revaluation changes carrying amount, not tax base, and new carrying amount should be the fair value)

    In consolidation, there are business combination valuation entries to deal with revaluation issues (tax effect and BCVR).



    Why do we treat them differently? Why don't we consider tax effect in business combination as well?

    Thanks
    sarahbing's Avatar
    sarahbing Posts: 5, Reputation: 1
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    #2

    Nov 8, 2013, 02:43 PM
    BTW, I am in Australia. So this question is based on Australian Accounting Standard, which means the International Accounting Standard.
    Curlyben's Avatar
    Curlyben Posts: 18,514, Reputation: 1860
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    #3

    Nov 8, 2013, 02:54 PM
    What do YOU think ?
    While we're happy to HELP we wont do all the work for you.
    Show us what you have done and where you are having problems..
    sarahbing's Avatar
    sarahbing Posts: 5, Reputation: 1
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    #4

    Nov 8, 2013, 03:00 PM
    It's not homework. When I was reading textbook, I came up with this question. I discussed with one of my classmates, he didn't know the answer.

    The only reasons I think should be that there is no revaluation in Business Combination, or during business combination, the acquirer took over all their assets and liabilities, and DTL, DTA don't account under some accounting standard.
    sarahbing's Avatar
    sarahbing Posts: 5, Reputation: 1
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    #5

    Nov 8, 2013, 03:01 PM
    Count*
    rehmanvohra's Avatar
    rehmanvohra Posts: 739, Reputation: 27
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    #6

    Nov 9, 2013, 02:04 AM
    In such a situation, the business combination is not a separate taxable entity, hence tax effect is ignored.
    sarahbing's Avatar
    sarahbing Posts: 5, Reputation: 1
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    #7

    Nov 10, 2013, 08:45 PM
    Quote Originally Posted by rehmanvohra View Post
    In such a situation, the business combination is not a separate taxable entity, hence tax effect is ignored.
    Thanks rehmanvohra. One is economic substance transaction (consolidation,purchasing shares), not legal form transaction, another one is economic substance transaction and legal form transaction (business combination, purchasing assets and liabilities).

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