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Deferred tax (IAS 12) – Group accounts – ACCA (SBR) lectures

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  2. Hi, very well explained the tax area. thanks for that, Sir.

    While solving the exam kit of kaplan, there apears a question of HOLLS where the tax reconciliation is prepared which the candidate has to explained in the answer. My question is whether do we need to prepare that type of reconciliation in the exam or how can we explain it. Does open tuition has any video on that?
    Many thanks

    Waqas

  6. Hi sir,

    I have a question while doing the revision kit~ Group Question 4 Bravado. Here has an adjustment around FV for deferred tax. NA of subsidiary is 176 at acq date)1.6.20×8)and tax base is 166 with tax rate 30%. Thus the deferred I think is 3.
    However I got confused about
    1. The deferred tax 3 should place in Na@ aqc (31.5.20×8) or NA@reporting date(31.5.20×9). My confusion is because the consolidation happened @ reporting date
    2. In the anwer book, there is a movement 1/7 for the deferred tax. After the year the deferred tax is then 3-0.4=2.6. I don’t understand why there is a movement of 1/7 and where is the 1/7 comes from.
    Thank you

    • Hi,

      The deferred tax adjustment for the difference between the fair value of the net assets and their tax base is an adjustment made initially at acquisition and we;d make it in the net assets working. Unless then otherwise this adjustment will stay at the reporting date unless information in the question suggests that it changes.

      In the question the fair value adjustment is due to PPE that is depreciated over 7 years from the date of acquisition. As the reporting date is one year on from this acquisition date then 1/7 worth of depreciation is charged in the post-acquisition period. Therefore the fair value of the net assets will have reduced at the reporting date and therefore the temporary difference will also have reduce for calculating deferred tax as there is no information to say that the tax base has changed. We therefore reduce the deferred tax also by the 1/7, to give the 0.4 (with a bit of rounding in there).

      It is pretty tough this second part and I’d not expect that many people either attempted it, or if they did actually attempt it then they wouldn’t have got it right. So I’d not worry too much about it and focus on getting the first aspect of it all correct.

      Thanks

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