FRS 102 ― specific deferred tax issues

By Tolley in association with Malcolm Greenbaum
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The following Owner-Managed Businesses 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

Introduction

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

Voluntary revaluations of property, plant and equipment

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

FRS 102, s 17.15E (subscription sensitive)

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

FRS 102, s 29.12, 29.13, 29.15 (subscription sensitive)

The initial deferred tax asset or liability and any 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 (subscription sensitive)

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 and equipment (see above)

FRS 102, s 16.7 (subscription

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