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Tax

3.4 Consolidation issues: Fair value adjustments

The identifiable assets and liabilities of the acquired subsidiary are consolidated at
fair value but the tax base derives from the subsidiary's individual financial
statements.

A temporary difference is created, giving rise to deferred tax in the consolidated
financial statements.

Fair value adjustments are processed in the net assets table (W2) and impact
goodwill. The deferred tax impact of the fair value adjustment is accounted for in the
same place.

Illustrations and further practice

Now try TYU question 7 from Chapter 12

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