In business combinations an entity recognises any deferred tax liability or asset and this affects the amount of goodwill or bargain purchase gain it recognizes.

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Deferred tax liabilities or assets arise when the tax value of assets and liabilities differs from their carrying value in financial statements. In a business combination, the recognition of deferred tax liabilities or assets affects the amount of goodwill or bargain purchase gain recognized. This is because goodwill is the excess of the purchase price over the fair value of net identifiable assets acquired, and the fair value of assets and liabilities may differ from their tax values. The recognition of deferred tax liabilities or assets adjusts the tax values of assets and liabilities, and therefore affects the calculation of goodwill or bargain purchase gain.

In Business Combinations an Entity Recognises Any Deferred Tax Liability