Asalam o alaikum to all members..
Can any one help me on deferred tax issue?
When a revaluation surplus incorporate in accounts we charged deferred tax to revaluation surplus according to ias 12 and resultant revaluation surplus net of deferred tax. the 35% portion of incremental depreciation transfer to earning through deferred tax account. what will happen when we get deferred tax asset in future and we are not recognised resultant deferred tax asset. how we transfer the 35% portion of incremental depreciation from that year to onwards?
AOA Mr. Atif,
It is an interesting question you have posted here. I want some clarification regarding it.Was deferred tax liability appearing last year and has changed to deferred tax this year or it was deferred tax asset the previous year as well (and not recognized of course).
if you quote a question with numbers it will be easy to answer....
Temporary differences can arise on items charged directly in statement of comprehensive income (equity) and those charged through profit or loss. Both have to be seen separately and cannot be offset.
If you have deferred tax asset on all differences EXCEPT revaluation surplus (or gain on available for sale unquoted investment etc) on which you have liability; and you don't estimate to realize deffered tax asset on such (profit or loss related differences) in forseeable future, you will not recognize it. However, at the same time you will recognize deferred tax liability on items directly charged in equity as per IAS 12. These two cannot be offset.
It means, you will not be offsetting one type of deferred tax asset (not to be recognized) against the deferred tax liability of surplus/directly chargeable in equity.
Due to this, there would be no question of new treatment of incremental depreciation. Surplus would stand at 65%, deferred tax liability at 35% AND resultant incremental depreciation will be kept on treated as per section 235 (read with SRO 45).
Regards,
Thanks ALL members Specially Sir Kamran
Sir KAMRAN i am waiting for your reply specially.
Now i elaborate my question please tell me whether it is correct treatment?
Year 1
Fixed asset (Deferred tax liability - DTL) 150
Tax losses (Deferred tax Asset - DTA) 100
Net Deferred tax liability recognised is 50
Year 2
Fixed Asset Cost (DTL) 120
Fixed Asset Revalued amount closing(DTL) (90@35%) 31.5
Tax losses 120
Closing Deferred tax liability 31.5
During the year fixed assets revalued and Revaluation surplus of 100 arise. We made entry regarding Deferred tax
Revaluation surplus (DR.)(35)
Deferred Tax liability (CR.)(35)
On the other hand Fixed asset closing value increased due to revalue and hence difference with tax base increase resulting increase in deferred tax liability.
Revaluation surplus closing is (65-6.5(incremental depreciation) = 58.5)
Year 3
Fixed Asset Cost (DTL) 100
Fixed Asset Revalued amount closing(DTL) (80@35%) 28
Tax losses 150
Closing Deferred tax Asset (Not Recognisd) 22
Now what will be amount of incremental depreciation transfer from revaluation surplus account to retained earning is it 65% of incremental depreciation. how we transfer remaining 35% through deferred tax account when no closing asset recognised?
SIR KAMRAN FOR YOU
From your views i understand this we recognise a deferred tax liability of 28 in the account as closing and ignore remaining amounts of deferred tax liability and assets which result in closing asset.
sir Please Help me.