Document ID: chunk:federal_register_of_legislation:F2023C00930:reg:5:p50
Version: federal_register_of_legislation:F2023C00930
Segment Type: reg
Provision Reference: reg 5 (pt 50/61)
Character Range: 166602–171770

=                                                                                    272,000
Less deferred tax asset at start of year                                                                  (208,000)
Deferred tax income for year                                                                                                                                                64,000

The deferred tax income is recognised partly in profit or loss and partly directly in equity as follows:
                                                                                                          Estimated future tax deduction (40,000 × 17) =           680,000
                                                                                                          Cumulative remuneration expense                          563,000
                                                                                                          Excess tax deduction                                                      117,000
                                                                                                          Deferred tax income for year                             64,000
                                                                                                          Excess recognised directly in equity (117,000 × 0.40) =  46,800
                                                                                                          Recognised in profit or loss                                              17,200

Year 5

Deferred tax expense (reversal of deferred tax asset)                                                            272,000
Amount recognised directly in equity (reversal of cumulative deferred tax income recognised directly in equity)  46,800
Amount recognised in profit or loss                                                                                          225,200
Current tax income based on intrinsic value of options at exercise date (40,000 × 20 × 0.40) =                   320,000
Amount recognised in profit or loss (563,000 × 0.40) =                                                           225,200
Amount recognised directly in equity                                                                                         94,800

Summary
Statement of comprehensive income  Statement of financial position

                                   Employee services expense        Current tax expense (income)  Deferred tax expense (income)  Total tax expense (income)  Equity    Deferred tax asset

Year 1                             188,000                          0                             (33,333)                       (33,333)                    0         33,333
Year 2                             185,000                          0                             (62,667)                       (62,667)                    0         96,000
Year 3                             190,000                          0                             (112,000)                      (112,000)                   0         208,000
Year 4                             0                                0                             (17,200)                       (17,200)                    (46,800)  272,000
Year 5                             0                                (225,200)                     225,200                        0                           46,800    0
                                                                                                                                                             (94,800)
Totals                             563,000                          (225,200)                     0                              (225,200)                   (94,800)  0

Example 6 – Replacement awards in a business combination
On 1 January 20X1 Entity A acquired 100 per cent of Entity B. Entity A pays cash consideration of CU400 to the former owners of Entity B.
At the acquisition date Entity B had outstanding employee share options with a market-based measure of CU100. The share options were fully vested. As part of the business combination Entity B's outstanding share options are replaced by share options of Entity A (replacement awards) with a market-based measure of CU100 and an intrinsic value of CU80. The replacement awards are fully vested. In accordance with paragraphs B56–B62 of AASB 3 Business Combinations, the replacement awards are part of the consideration transferred for Entity B. A tax deduction for the replacement awards will not arise until the options are exercised. The tax deduction will be based on the share options' intrinsic value at that date. Entity A's tax rate is 40 per cent. Entity A recognises a deferred tax asset of CU32 (CU80 intrinsic value × 40%) on the replacement awards at the acquisition date.
Entity A measures the identifiable net assets obtained in the business combination (excluding deferred tax assets and liabilities) at CU450. The tax base of the identifiable net assets obtained is CU300. Entity A recognises a deferred tax liability of CU60 ((CU450 – CU300) × 40%) on the identifiable net assets