Asked by Antonio DjToniko on Jul 11, 2024
Verified
How is the amortization of goodwill treated for income tax purposes? How does the amortization of goodwill affect deferred income taxes?
Amortization Of Goodwill
The process of gradually writing off the initial cost of goodwill over a period, reflecting the diminution of the asset's value over time.
Deferred Income Taxes
Income taxes that are assessed or due for the current period but have been deferred to be paid in a future period.
Income Tax Purposes
The specific objectives or calculations for which income tax-related data is used, including determining taxable income and tax liability.
- Compute the value of goodwill and its depreciation for both accounting and taxation objectives.
- Understand and assess the implications of deferred income taxes in consolidating financial statements.
Verified Answer
MY
Mustafa YilmazJul 12, 2024
Final Answer :
In a business combination, goodwill is tested annually for impairment for financial statement purposes. The Internal Revenue Code allows the deduction of goodwill and other purchased intangibles over a 15-year period. Because the taxable income and financial income differ, the presence of goodwill causes a temporary difference that necessitates the recognition of deferred income taxes.
Learning Objectives
- Compute the value of goodwill and its depreciation for both accounting and taxation objectives.
- Understand and assess the implications of deferred income taxes in consolidating financial statements.