Bergen Company had the following book and fair values on the date it was acquired by Panther Company:
If there is a decrease in estimate for the valuation account within one year of the acquisition date, goodwill is reduced for the same amount. Thus, if within one year, the valuation account were lowered by $20,000 (from $30,000 to $10,000), Goodwill would be credited for $20,000 as follows:
Valuation Allowance for Deferred Tax Asset. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000
However, if the adjustment is caused by events that occur after the acquisition, the credit would be to the current provision for taxes.6
Changes in the valuation account after the 1-year period result in an adjustment to the tax provision for the period in which the new estimate is made.