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I am doing the question 15. Panel in the Revision Kit version updated to the exam June 2018.
For (b) (1), I don’t understand the answer.
According to my understanding:
At 31 Oct 20X4,
Carrying amount of share based payment: $40m/2=$20m
Tax base of share base payment: 0 (because related tax deduction dose not arise until the share options are ecercised)
-> Deferred tax asset: 30%x$20m=$6m
I see the answer noted that $6m is tax effect, instead of deferred tax asset; and the deferred tax asset should be $2.4m=$16m/2. I could not understand this answer.
I look forward to your response and many thanks in advance.
I don’t know how to find the carrying amount of share based payment, which the answer says to be normally zero. Can you explain to me?
The key here is that for deferred tax purposes, when we are calculating the carrying value we use the intrinsic value of the SBP and not the fair value. It is a bit strange but is just following the rules within the standard. I think the video in the SBP chapter covers this.