entity a s first ifrs financial statements are for a period that ends on 31 december 611096

Restatement of intangible assets, deferred tax and non-controlling interests

Entity A”s first IFRS financial statements are for a period that ends on 31 December 2013 and include comparative information for 2012 only. On 1 July 2009, Entity A acquired 75% of subsidiary B. Under its previous GAAP, Entity A assigned an initial carrying amount of £200 to intangible assets that would not have qualified for recognition under IAS 38. The tax base of the intangible assets was £nil, giving rise to a deferred tax liability (at 30%) of £60. Entity A measured non-controlling interests as their share of the fair value of the identifiable net assets acquired. Goodwill arising on the acquisition was capitalised as an asset in A”s consolidated financial statements.

On 1 January 2012 (the date of transition to IFRSs), the carrying amount of the intangible assets under previous GAAP was £160, and the carrying amount of the related deferred tax liability was £48 (30% of £160).

Under IFRS 1, Entity A reclassifies intangible assets that do not qualify for recognition as separate assets under IAS 38, together with the related deferred tax liability of £48 and non-controlling interests, as part of goodwill. The related non-controlling interests amount to £28 (25% of £112 (£160 minus £48)). Entity A makes the following adjustment in its opening IFRS statement of financial position:

Entity A tests the goodwill for impairment under IAS 36 and recognises any resulting impairment loss, based on conditions that existed at the date of transition to IFRSs.

This means that there is a difference in treatment depending on whether the first-time adopter is accounting for acquired intangible assets that it previously recognised in accordance with its previous GAAP or whether it had subsumed the intangible asset into goodwill. In the first case it must recognise a deferred tax liability and adjust opening reserves. By contrast in the second case it would have to decrease the carrying amount of goodwill and adjust deferred tax and minority interests as necessary, as discussed at above. The IASB discussed this issue in October 2005, but decided not to propose an amendment to address this inconsistency.