New Interpretation of the National Accounting Council

We recently informed you that the latest interpretation of the National Accounting Council, I-48 Valuation of Assets and Liabilities in Transactions with a Plant or Portion of a Plant, was approved on 16 January 2023. This Interpretation expands on Interpretations I-25 Measurement Subsequent to a Predecessor, I-45 Impairment of Tangible and Intangible Fixed Assets-Testing and Reporting, and I-2 Transition Differences on Conversions and Contributions. The authors of the new interpretation are Ing. Alice Šrámková and Ing. Libor Vašek Ph.D.

The main points of the interpretation are:

• When is it appropriate to measure acquired assets and liabilities at fair value and recognise goodwill (the “goodwill method”)?
• When is it appropriate to take the valuation of assets and liabilities from the depositor or seller (the “valuation difference method”) and recognise the valuation difference on the assets acquired?
• How to determine the amortisation period for goodwill or valuation difference on acquired assets?
• In which situations does deferred tax arise and how should it be recognised?

The Interpretation describes the goodwill method under Section 6(3)(c) of Decree No 500/2002 Coll. as ideal, during which the components of the assets are individually revalued less the debts assumed. In this case, goodwill arises from the difference between the measured assets and liabilities and is subsequently amortised over the period that the assets generate economic benefits. The maximum depreciation period is 120 months according to Section 56(2) of Decree No. 500/2002 Coll., but the period of economic utility may in reality exceed 120 months.

If this method generates negative goodwill, revaluation should occur and the entity should determine whether or not a bargain purchase actually occurred.

This procedure is recommended on the basis of Section 7(2) of Act No. 563/2002 Coll., on Accounting, which defines a true and fair view of accounting.

If you have any questions about this topic, please do not hesitate to contact us.

Author: Alice Šrámková