FRS 102 ― specific deferred tax issues

Tolley in association with Malcolm Greenbaum
FRS 102 ― specific deferred tax issues

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

  • Example 1 ― voluntary revaluation of property, plant and equipment
  • Example 2 ― measurement of investment property after initial recognition
  • Example 3 ― business combinations
  • Example 4 ― finance lessors

These examples support the commentary in the FRS 102 specific deferred tax issues guidance note Example 1 voluntary revaluation of property plant and equipment A company purchased a freehold property for use in its business during the year for 3 million It has decided to adopt a policy of annual revaluation At the end of the year the property has been depreciated to a book value of 2 9 million and at this date it is revalued to 3 2 million Assume the retail prices index has increased by 1 5 since the property was purchased The corporation tax rate is considered to be 19 in this calculation The company must recognise a deferred tax liability assuming a sale of the property at the reporting date The unrealised capital gain is Current market value 3 200m Cost 3 000m Indexation 1 5 x 3m 0 045m 0 155m The corporation tax payable would be 19 on 0 155m 29 450 Indexation allowance is frozen from 1 January 2018 so the indexation allowance on the freehold property will only be available up to the end of December 2017 and assets acquired from 1 January 2018 will not attract indexation on disposal Deferred tax The company would therefore recognise a deferred tax liability of 29 450 with a corresponding debit to other comprehensive income The statement of comprehensive income would contain Profit or loss for the period say 5 000 000 Plus gain on revaluation of property plant and equipment 3 2m 2 9m 300 000 Less deferred tax liability on revaluation 29 450 5 270 550 Example 2 measurement of investment property after initial reco

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