assume that the entity in above has acquired a brand that would be tax deductible if 612430

Impairment testing assets whose fair value reflects tax amortisation benefits

Assume that the entity in above has acquired a brand that would be tax deductible if separately acquired but that also has a tax base of zero. The entity concludes that the fair value will reflect the tax benefit, whose gross amount is €40m (€60m × 40% / 60%) but in calculating the fair value this will be discounted to its present value – say €30m. The initial entry is now as follows:

” 40% of ($[90m + 20m] — €15m)

Overall, the gross assets that cost €100m will now be recorded at €138m, as against the total of €126m in. This increase has come about because of recognition of deferred tax of €12m, which is 40% of €30m, the assumed tax amortisation benefit.

In this example, only €8m goodwill results from the recognition of deferred tax [€28m – (€100 – (€60m + €20m))] and its treatment is discussed above at.

Unlike goodwill, the intangible asset will only have to be tested for impairment if there are indicators of impairment, if it has an indefinite useful life or if it has not yet been brought into use. [IAS 36.10]. Because its ‘fair value’ of €90m is much in excess of the amount that the entity considers that it paid to acquire the asset could this be considered an indicator of impairment? Not necessarily, and should it be necessary to test it for impairment, the asset has been valued on the assumption that it will generate future tax inflows and it is only consistent that the impairment test takes account of the same assumptions. A discount rate is calculated using the assumptions about taxation described in above (i.e. that VIU equals tax base). Whatever rate is selected, it will be one that reflects market assumptions about the availability of tax relief and the level of taxation. The implications are similar to those discussed in above.