Reference no: EM132421038

Problem: The consolidated financial statements of A Ltd and BLtd were presented to the Board. The Board is alarmed that the economic entity's balance sheet (consolidated balance sheet) shows a deferred tax balance, when the accounts for ALtd had no deferred tax asset or deferred tax liability.

A management is also planning to acquire another entity C Investments Ltd in the near future. Management pointed out to the Board that on acquisition, the financial results of this new subsidiary (C Investments Ltd) will also be consolidated in the economic entity financial statements.

One of the Board members noted that the new business to be acquired by A Ltd is an investment company. Its financial statements should not be consolidated because it is involved in investments industry, whereas all of the other companies in the economic entity are involved in retail industry.

Please help me to answer the following questions:

(a) Why does the economic entity have a deferred tax balance?

(b) Should the financial statements of proposed acquired business, C Investments Ltd, be consolidated into the economic entity and why?

Please note make reference to relevant paragraphs of the Accounting Standard and/or AASB Framework and to other sources of material.