Example assume that an entity has a carry forward tax

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example, assume that an entity has a carry forward tax loss of $18 000, exempt income for the current period is $5 000 and the current year’s taxable income is $25 000. Instead of reducing the taxable income down by $18 000 to $7 000, the entity must first reduce the carry forward tax loss by the $5 000 exempt income. This will now result in the entity’s taxable income being reduced down by only $13 000, being ($18 000 - $5 000) to $12 000. Thus the ATO will collect an additional ($5 000 x Tax Rate) because of the exempt income.
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Business Combination: 1. What is meant by a “business combination”? AASB 3 Appendix A: Business: “an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs or other economic benefits directly to investors or other owners, members or participants” Business combination: A transaction or other event in which an acquirer obtains control of one or more businesses” Consider inputs, processes and outputs Only in a business combination can goodwill be present. 2. Discuss the importance of identifying the acquisition date. Acquisition date is the date on which the acquirer obtains control of the acquiree. Important because on this date: the fair values of the identifiable assets acquired and liabilities assumed are measured. the fair value of the consideration transferred is measured the goodwill or gain on bargain purchase is calculated. 3. What is meant by “contingent consideration” and how is it accounted for? Appendix A: Contingent consideration: Usually, an obligation of the acquirer to transfer additional assets or equity interests to the former owners of an acquiree as part of the exchange for control of the acquiree if specified future events occur or conditions are met. However, contingent consideration also may give the acquirer the right to the return of previously transferred consideration if specified conditions are met. See AASB 3 paras. 39-40 Para 39: The consideration transferred includes any asset or liability resulting from a contingent consideration arrangement. This is measured at fair value at acquisition date.
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Para 40: The acquirer shall classify the obligation to pay contingent consideration as a liability or equity. Para 58: Changes in the measurement of the obligation subsequent to acquisition date resulting from events after the acquisition date are accounted for differently depending on whether the obligation was classified as equity or debt. If classified as equity, the equity shall not be remeasured. If classified as liability, it is accounted under AASB 139 of AASB 137 as appropriate. 4. Explain the key components of “core” goodwill. Core goodwill has two main components: (i) Going concern goodwill : relates to the net assets of the acquiree, in that the acquiree’s net assets together are worth more than the net assets separately, caused by the synergy created by the acquiree’s net assets within the acquiree as a going concern.
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