FRS 102 ― specific deferred tax issues

By Tolley in association with Malcolm Greenbaum
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The following Corporation Tax guidance note by Tolley in association with Malcolm Greenbaum provides comprehensive and up to date tax information covering:

  • FRS 102 ― specific deferred tax issues
  • Introduction
  • Voluntary revaluations of property, plant and equipment
  • Measurement of investment property after initial recognition
  • Business combinations
  • Income or expenses of subsidiaries, branches, joint ventures and associates
  • Finance lessors
  • Holiday pay accruals
  • Gains rolled over
  • Derivative contracts

Introduction

FRS 102  requires deferred tax to be recognised in certain transactions that would not have given rise to deferred tax under old UK GAAP (FRS 19 ), andit has changed the parameters within other transactions that potentially give rise to deferred taxation (see ‘Income or expenses of subsidiaries, branches, joint ventures andassociates’ section below).

Voluntary revaluations of property, plant andequipment

Under FRS 102, gains andlosses on revaluation are recognised in the statement of other comprehensive income, which is outside of the income statement.

FRS 102, s 17.15E

Deferred tax must be recognised assuming a sale of the property at the reporting date, using the tax rates andallowances that apply to the sale of the asset.

FRS 102, s 29.12, 29.13, 29.15

The initial deferred tax asset or liability andany change in the balance in subsequent accounting periods is recognised in ‘other comprehensive income’ to match the valuation adjustment giving rise to it.

FRS 102, s 29.22

See Example 1.

Measurement of investment property after initial recognition

FRS 102  permits two accounting treatments for an investment property as follows:

  • 1)if fair value can be measured reliably without undue cost or effort, the investment property should not be depreciated. Instead, it should be revalued to fair value at each reporting date, with the change in fair value being recognised as income or an expense in the income statement
  • 2)if fair value cannot be measured reliably without undue cost or effort, the investment property should be treated like any other item of property, plant andequipment (see above)

FRS 102, s 16.7

Deferred tax must be recognised if fair value adjustments are used,

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