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Hi
There is a warranty prov in sofp last year was 275k now it is 350k.
I understand d tax and just putting in the movement to d tax but am unsure why in the question this is reffered to as d tax asset? I thought it would be a liability therefore d tax liability.I also understand that if cv is higher Thant tax base then this is classed as liability as we are using up more now so therefore later the profits will be higher therefore tax would be higher. I am having trouble in understanding if it asset or liability for certain things as mentioned above.
Also I have read that if it is revaluation then the changes to d tax go to reserve not p&l is this correct?
Hi,
The warranty provision gives rise to a deferred tax asset because the carrying value is less than the tax base. The carrying value is the value of the provision and the tax base is nil. Don’t forget that the provision is a liability so we treat it as a negative figure when comparing to the tax base of nil.
To understand if it is a deferred tax asset or liability then you need to compare the carrying value under IFRS to the tax base. Remember the tax base is the figure the tax authorities would use if they were preparing their equivalent SFP.
Yes, you’re correct with regards the revaluation. Any gain on revaluation goes through OCI, so therefore the deferred tax on the revaluation also goes through OCI.
Thanks
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