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.
An entity can either record the amounts in its subsidiary’s books (i.e., actual pushdown accounting) or
maintain the records necessary to adjust the consolidated amounts to what they would have been had
the amounts been recorded on the subsidiary’s books (i.e., notional pushdown accounting). In many
instances, the latter method can make record keeping more complex.
Further, the entire amount recorded under the acquisition method for a particular asset or liability must
be converted to the currency in which the tax-paying component files its tax return (the “tax currency”)
to properly determine the temporary difference associated with the particular asset or liability and the
corresponding deferred tax asset or deferred tax liability (i.e., deferred taxes are calculated in the tax
currency and then translated or remeasured in accordance with ASC 830).
See Deloitte’s Roadmap Income Taxes for more information.