PDF, 1.2 MB - Pfleiderer AG

116 being focused: being better
8. Deferred taxes
9. Accounting for goodwill
and impairment
10. Discontinued operations
According to HGB, deferred taxes must be calculated on all temporary differences resulting
between the Company’s tax balance sheet and its consolidated balance sheet (timing concept),
thereby applying the current corporate income tax rate. In this procedure, only deferred tax
liabilities must be recognized, while the Company has the option – with certain exceptions – to
capitalize deferred tax assets or not. No deferred taxes may be carried to cover quasi-permanent
differences which are only reversed after a very long period of time, or following sale or
winding up. The same applies to loss carryforwards.
According to US GAAP, SFAS 109, deferred taxes are formed for valuation differences
between the assets and liabilities on the tax balance sheet and those on the consolidated
balance sheet, based on the statutory applicable tax rate at the end of the reporting period
and expected tax rate applicable at the time of reversal. Deferred taxes must be carried for all
temporary differences between tax values and carrying amounts in the consolidated balance
sheet. Using this procedure, quasi-permanent differences are classified as temporary (temporary
concept). This aside, deferred taxes must be formed for tax loss carryforwards. Deferred
tax assets must also be examined at every balance sheet date for realizability and adjusted
through valuation allowances where necessary.
Under German commercial law, acquired goodwill must be capitalized and amortized over its
average useful life. Where it results from purchase accounting, goodwill must be offset against
equity at its full amount in the year of creation. Goodwill must be written down when, for example,
the future earnings position of the company is unlikely to produce positive results. Under
German commercial rules, the extraordinary amortization is considered justifiable in view of
the prudence principle.
Under US GAAP, goodwill is also capitalized, but scheduled amortization is no longer
permitted. Instead, SFAS 142 states that goodwill must be subjected to an impairment test at
least once a year, and its value adjusted where necessary.
Sec. 246 (2) HGB states that expenses and income or assets and liabilities may not be offset
against each other. This has the effect that discontinued operations cannot be shown separately
in the financial statements.
Under the US GAAP rules laid down in SFAS 144, on the other hand, the statement of
income and the balance sheet must be adjusted for effects of discontinued operations. The adjusted
figures must be summarized in a separate position as results in the statement of income
and as assets and liabilities on the balance sheet.