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Why should you recognize a deferred tax on revaluation of NCA?
When will the Deferred tax liability be expected to be settled?
Why is it charged to equity?
Because, on sale at the revalued amount, a profit will be achieved resulting in a tax charge.
Settled on sale of the asset
Because the revaluation is credited to equity
If land has been revalued to its fair value from 80,000 to 100,000 then:
CV=100,000 and its Tax Base (TB)= 80,000/=. Tax rate = 25 percentWill capital allowances be allowed when the asset is sold. In other words, the 20,000*25%= is the ONLY tax that will be payable once the asset is sold? Is that the meaning?
No, capital allowances (are they available on land – I’m not sure – you’ll need to ask the F6 tutor about that!) will, if they apply to land, only be given on the original cost. I THINK!
This is way beyond F7 and I don’t remember anything like it at P2!
Sorry to be non-definitive about this
I ask that question because if land has been revalue to 100000 from 80000, if we assume the tax base was 80000 before and after revaluation, why do we recognize a deferred tax of the equivalent of 20000 as the future liability. The tax base will remain same right every year because you don’t depreciate land. Once the asset has been sold, we only pay tax equivalent to the 20000 right? Or do we pay tax on the 100000?
If you make a gain on the land investment, you’ll pay tax on the amount of the gain
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