FRS 102 ― specific deferred tax issues

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).

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

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.

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.

See Example 1.

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,