Asked by Shelby Place on Jun 13, 2024
Verified
Discuss the differential treatment for tax purposes of investments in subsidiaries compared to other assets.
Tax Purposes
Refers to reasons or activities related to the calculation and payment of taxes.
Investments
Assets purchased with the expectation that they will generate income or appreciate in the future.
Subsidiaries
Companies that are controlled by another company, known as the parent company, through ownership of more than 50% of the subsidiary's voting stock.
- Acquire knowledge on the differential tax treatment for investments in subsidiaries and the adjustment process for deferred tax assets and liabilities during consolidation.
Verified Answer
ND
Nathan DavisJun 14, 2024
Final Answer :
Tax treatment of investment in subsidiaries:
- One of the exemptions from the need to recognise deferred tax assets and liabilities arises on the initial recognition of assets and liabilities,as this has no effect on accounting profit or taxable income at the time of recognition.
- This exemption does not apply to investments in subsidiaries,but accounting standard AASB 112 Income Taxes allows companies to ignore tax effects of temporary differences associated with the investment when certain conditions are satisfied.In particular,the parent needs to be satisfied that the tax effects will not reverse in the foreseeable future.
- One of the exemptions from the need to recognise deferred tax assets and liabilities arises on the initial recognition of assets and liabilities,as this has no effect on accounting profit or taxable income at the time of recognition.
- This exemption does not apply to investments in subsidiaries,but accounting standard AASB 112 Income Taxes allows companies to ignore tax effects of temporary differences associated with the investment when certain conditions are satisfied.In particular,the parent needs to be satisfied that the tax effects will not reverse in the foreseeable future.
Learning Objectives
- Acquire knowledge on the differential tax treatment for investments in subsidiaries and the adjustment process for deferred tax assets and liabilities during consolidation.
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