Deferred tax in goodwill

CFA Level II
#1

Hi all

One question, when one calculates goodwill, the re valuation of assets to fair value creates a deferred tax liability when tax base is different

How would the entry be in the books?

Debit goodwill
Credit deferred tax liability?

I am not saying that goodwill creates a deferred tax but the fair value adj of the assets

Thanks

#2

Yes, you’re correct. When revaluing assets to fair value creates a deferred tax liability due to the difference in tax base, the entry would typically be:

Debit: Goodwill
Credit: Deferred Tax Liability

#3

Hey John thanks

But why debit goodwill to recognise the DT?

I mean if we already debited goodwill to recognise it, wouldn’t it over state it ?

#4

When calculating goodwill and adjusting assets to fair value in the context of an acquisition, a deferred tax liability (DTL) can indeed arise due to the difference between the fair value of the assets and their tax base.

#5

ok