Deferred tax on development costs — Accounting glossary

Determine the tax base under the applicable tax law and compare it with the carrying amount. Capitalised costs already fully deducted for tax commonly create a taxable temporary difference and deferred tax liability, not automatically an asset. Apply the enacted or substantively enacted rate and IAS 12 recognition exceptions. Future taxable profit considerations are relevant to recognition of deferred tax assets, not a blanket reversal of the sign.

Worked example

Development expenditure is capitalised at $100,000 and has tax base zero because it has already been deducted for tax. At 25%, a $25,000 deferred tax liability arises, assuming no exception applies.

Common mistake

Calling a $25,000 deferred tax liability an asset merely because the entity expects future sales.

Where it appears in your exams

Qualification	Exam	Relationship	Period
ACCA	FR	Direct	September 2026–June 2027
ACCA	SBR	Direct	September 2026–June 2027