Document ID: chunk:federal_register_of_legislation:F2023C00930:reg:5:p51
Version: federal_register_of_legislation:F2023C00930
Segment Type: reg
Provision Reference: reg 5 (pt 51/61)
Character Range: 171521–175117

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 at the acquisition date.
Goodwill is calculated as follows:
                                                                        CU

Cash consideration                                                      400
Market-based measure of replacement awards                              100
Total consideration transferred                                         500
Identifiable net assets, excluding deferred tax assets and liabilities  (450)
Deferred tax asset                                                      32
Deferred tax liability                                                  60
Goodwill                                                                78

Reductions in the carrying amount of goodwill are not deductible for tax purposes. In accordance with paragraph 15(a) of the Standard, Entity A recognises no deferred tax liability for the taxable temporary difference associated with the goodwill recognised in the business combination.
The accounting entry for the business combination is as follows:
                             CU                              CU

Dr  Goodwill                 78
Dr  Identifiable net assets  450
Dr  Deferred tax asset       32
    Cr                       Cash                                400
    Cr                       Equity (replacement awards)         100
    Cr                       Deferred tax liability              60

On 31 December 20X1 the intrinsic value of the replacement awards is CU120. Entity A recognises a deferred tax asset of CU48 (CU120 × 40%). Entity A recognises deferred tax income of CU16 (CU48 – CU32) from the increase in the intrinsic value of the replacement awards. The accounting entry is as follows:
                        CU                      CU

Dr  Deferred tax asset  16
    Cr                  Deferred tax income         16

If the replacement awards had not been tax-deductible under current tax law, Entity A would not have recognised a deferred tax asset on the acquisition date. Entity A would have accounted for any subsequent events that result in a tax deduction related to the replacement award in the deferred tax income or expense of the period in which the subsequent event occurred.
Paragraphs B56–B62 of AASB 3 provide guidance on determining which portion of a replacement award is part of the consideration transferred in a business combination and which portion is attributable to future service and thus a post-combination remuneration expense. Deferred tax assets and liabilities on replacement awards that are post-combination expenses are accounted for in accordance with the general principles as illustrated in Example 5.

Example 7 – Debt instruments measured at fair value

Debt instruments

At 31 December 20X1, Entity Z holds a portfolio of three debt instruments:

Debt Instrument  Cost          Fair value      Contractual interest rate
                 (CU)          (CU)

A                2,000,000     1,942,857       2.00%
B                750,000       778,571         9.00%
C                2,000,000     1,961,905       3.00%

Entity Z acquired all the debt instruments on issuance for their nominal value. The terms of the debt instruments require the issuer to pay the nominal value of the debt instruments on their maturity on 31 December 20X2.

Interest is paid at the end of each year at the