01-20-2010, 12:08 AM
Shakil
In my view deferred tax liability of asset has to be provided on finance lease arrangement since the paragraphs referred by you don't apply to such an arrangement.
I would like to hear your point of view in detail. However, let me tell you that at initial recognition, there is an accounting base of leased asset and an accounting base of leased liability, whereas the tax base of such asset and such liability in Nil.
It has to affect accounting profit with "depreciation on asset" and "finance charge on liability" outrightly from the time of recognition. At the same time it has to affect tax profit with "lease rentals paid" (instead of depreciation and finance charge) exactly from the time of the recognition.
Further, the "charge to accounting profit" (Depreciation + finance expense) eventually has to equate the "lease rentals allowed in tax" [principal portion of liability (which you will appreciate is exactly equal to the value of the asset) plus finance charge embedded in a rental] only with the difference of some temporary timing gap.
Since this has to equate with a difference of timing gap, it is a temporary difference. It can either be a taxable difference or deductible difference depending upon a given situation and proposition. It has twofold calculation that is as under
First
ACCOUNTING BASE OF ASSET
LESS TAX BASE OF ASSET (this is zero)
Resultant difference will be deductible difference.
Second
ACCOUNTING BASE OF LIABILITY (PRINCIPAL)
LESS TAX BASE OF SUCH LIABILITY (this is zero)
Resultant is taxable temporary difference.
The net of "First" and "Seecond" will decide which difference is greater and whether deferred tax asset will arise or deferred tax liability will arise.
I lookforward to hear your view point.
Regards,
KAMRAN.
In my view deferred tax liability of asset has to be provided on finance lease arrangement since the paragraphs referred by you don't apply to such an arrangement.
I would like to hear your point of view in detail. However, let me tell you that at initial recognition, there is an accounting base of leased asset and an accounting base of leased liability, whereas the tax base of such asset and such liability in Nil.
It has to affect accounting profit with "depreciation on asset" and "finance charge on liability" outrightly from the time of recognition. At the same time it has to affect tax profit with "lease rentals paid" (instead of depreciation and finance charge) exactly from the time of the recognition.
Further, the "charge to accounting profit" (Depreciation + finance expense) eventually has to equate the "lease rentals allowed in tax" [principal portion of liability (which you will appreciate is exactly equal to the value of the asset) plus finance charge embedded in a rental] only with the difference of some temporary timing gap.
Since this has to equate with a difference of timing gap, it is a temporary difference. It can either be a taxable difference or deductible difference depending upon a given situation and proposition. It has twofold calculation that is as under
First
ACCOUNTING BASE OF ASSET
LESS TAX BASE OF ASSET (this is zero)
Resultant difference will be deductible difference.
Second
ACCOUNTING BASE OF LIABILITY (PRINCIPAL)
LESS TAX BASE OF SUCH LIABILITY (this is zero)
Resultant is taxable temporary difference.
The net of "First" and "Seecond" will decide which difference is greater and whether deferred tax asset will arise or deferred tax liability will arise.
I lookforward to hear your view point.
Regards,
KAMRAN.
