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Acquisition Step Up Basis Deferred Taxes

How does an acquisition that involves stepping up the basis of intangible assets affect deferred taxes? Please explain the accounting entries.

Answers

Jeff Johnson
Title: Partner
Company: Johnson & Garrison, LLC
(Partner, Johnson & Garrison, LLC) |

The answer will depend on whether there is a step-up in basis for tax purposes. If book and tax basis are both stepped up, there will typically be no significant initial recording of a deferred tax balance. If there is no tax step-up (only book), then there will likely be a deferred tax liability put up as well. If this is done under US GAAP purchase accounting guidelines, the recording of the DTL will typically impact book goodwill on the opening balance sheet. There are a number of other scenarios that could come into play - this is just an example of what is most commonly seen in practice.

Hope this is helpful.

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