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Appendix A — Pushdown Accounting

A.13 Income Taxes

A.13 Income Taxes

Although the application of pushdown accounting is optional under ASC 805-50, ASC 740-10-30-5 states that deferred taxes must be “determined separately for each tax-paying component . . . in each tax jurisdiction.” Therefore, to properly determine the temporary differences and to apply ASC 740 accurately, an entity must push down, to each tax-paying component, the amounts assigned to the individual assets and liabilities for financial reporting purposes. That is, because the cash inflows from assets acquired or cash outflows from liabilities assumed will be reflected on the tax return of the respective tax-paying component, the acquirer has a taxable or deductible temporary difference related to the entire amount recorded under the acquisition method (compared with its tax basis), regardless of whether such acquisition-method adjustments are actually pushed down and reflected in the acquiree’s separate financial statements.