FRS 102 ― specific deferred tax issues

By Tolley in association with Malcolm Greenbaum
  • (Updated for Budget 2020)
Corporation_tax_img2

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
  • 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)
Indexaton(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

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