Full explanation
Overview
Two identical acquisitions. One books seventy-five thousand more goodwill — over a number nobody negotiated.
Part one was the mechanics. Part two is where deferred tax actually shows up — revaluations, pensions, share schemes, group accounts — and the one live rule the IASB had to build a special exception for.
Straight into goodwill
When Meridian buys a company, it fair-values the target's assets — but the tax base of those assets does not move with it. One acquired asset gets fair-valued to eight hundred thousand euros; its tax base, unchanged, stays at five hundred thousand. That gap of three hundred thousand is a taxable temporary difference, and the resulting deferred tax liability — seventy-five thousand euros — does not go through profit or loss at all. It goes straight into GOODWILL.
One award, two homes
Share-based payment splits in a way almost nothing else does. Meridian's cumulative IFRS 2 expense on a share award is two hundred thousand euros. But the tax authority's future deduction is based on the share price at exercise — today, that would be two hundred and eighty thousand. The tax effect of the two hundred thousand goes to profit or loss, fifty thousand. The tax effect of the EXTRA eighty thousand — twenty thousand — goes straight to equity. One award, one deferred tax asset, two different homes.
Two more sources, and then the one everyone in a group structure needs to know.
A temporary difference from exchange rates alone
Where a non-monetary asset's tax base sits in a different currency from your functional currency, retranslating that tax base at each year end creates a temporary difference from EXCHANGE RATES ALONE — even though the asset itself is never retranslated under IAS 21. That deferred tax movement goes through profit or loss, because it didn't come from an OCI or equity item in the first place.
€30,000, only in the consolidated accounts
Sell inventory from parent to subsidiary at a twenty percent markup, and if the subsidiary hasn't resold it externally by year end, consolidation eliminates that unrealised profit. But the PARENT already paid real tax on it, in its own jurisdiction. On a hundred and twenty thousand euros of unrealised profit, that is a thirty-thousand-euro deferred tax asset in the consolidated accounts — assessed entity by entity, jurisdiction by jurisdiction.
Tax follows the item , every time
And two sources you already know from this channel, now filed correctly. A revaluation surplus under IAS 16, and a defined benefit remeasurement under IAS 19, are both recognised in OTHER COMPREHENSIVE INCOME — so their deferred tax sits in OCI too. An IAS 40 fair value gain, and an IAS 37 provision, both run through profit or loss — so their deferred tax does too. Tax follows the item, every time.
All of that assumes there's future profit to use the asset against. When there isn't, the bar gets a lot higher.
€600,000 if recognised in full
Meridian's subsidiary Newco has just posted its third consecutive annual loss. Tax losses carried forward: two million four hundred thousand euros. Recognised in full, that is a six-hundred-thousand-euro deferred tax asset. But a history of recent losses raises the bar — you need either sufficient existing taxable temporary differences, or genuinely convincing other evidence. A management forecast alone is NOT enough. A secured contract, or a firm order book, might be.
A tax balance, never a provision
Uncertain tax positions get their own rulebook. IFRIC 23 asks whether it is probable a tax authority accepts your treatment; if not, you measure the effect using whichever better predicts the outcome — the single most likely amount, or a probability-weighted expected value. And a settled point worth repeating: an uncertain tax position is presented as a tax asset or liability. Never as an IAS 37 provision — even though both standards use the word probable.
Now the one live rule — a genuine global first, and the IASB had to write an exception just to buy time.
A mandatory exception
The OECD's Pillar Two rules set a fifteen percent minimum effective tax rate for large multinational groups, jurisdiction by jurisdiction. Working out the deferred tax consequences of a brand-new global tax system, country by country, was judged too complex to demand immediately — so in May twenty twenty-three the IASB introduced a MANDATORY temporary exception: no deferred tax is recognised or disclosed on Pillar Two legislation, even once it is enacted. Entities still disclose their CURRENT tax exposure, and — before the legislation even takes effect — what is reasonably estimable about it.
One last question, now that all these numbers exist. Where do they actually land on the statement?
The one category with no judgement
From January twenty twenty-seven, IFRS 18 gives income tax its OWN mandatory category — with zero classification judgement involved. Every other category on the statement can shift between operating, investing or financing depending on the entity's main business activity. Income tax never does. It sits after financing, and the statement runs straight through to profit for the period.
Always non-current
One presentation rule survives every one of these sources. Under a classified balance sheet, ALL deferred tax is non-current — regardless of how soon the underlying temporary difference actually reverses. And two deferred tax balances offset only with a legally enforceable right to do so, against the SAME tax authority.
Carrying amount vs tax base, every time
Nine sources, one rule connecting all of them: find the gap between carrying amount and tax base, then check where the ITEM itself landed — profit or loss, other comprehensive income, or equity — because the tax follows it there. Get that right, and every deferred tax number on a real set of accounts traces back to a paragraph you now know.