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Deferred Tax and Share-based payment

Forums › ACCA Forums › ACCA SBR Strategic Business Reporting Forums › Deferred Tax and Share-based payment

  • This topic has 1 reply, 2 voices, and was last updated 9 years ago by dhameelolar.
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  • November 10, 2015 at 12:46 pm #281475
    Abdul Rafay
    Member
    • Topics: 29
    • Replies: 44
    • ☆☆

    Sir,

    This is example# 4 from the Technical article IFRS 2 (https://www.accaglobal.com/uk/en/student/exam-support-resources/professional-exams-study-resources/p2/technical-articles/ifrs2.html):

    “A company operates in a country where it receives a tax deduction equal to the intrinsic value of the share options at the exercise date. The company grants share options to its employees with a fair value of $4.8m at the grant date. The company receives a tax allowance based on the intrinsic value of the options which is $4.2m. The tax rate applicable to the company is 30% and the share options vest in three-years’ time.

    Answer
    A deferred tax asset would be recognised of:

    $4.2m @ 30% tax rate x 1 year / 3 years = $420,000

    The deferred tax will only be recognised if there are sufficient future taxable profits available.”

    Now from what I understand of share-based payment transactions, the company should have recognised an expense equal to $4.8m(assuming all will vest as we do not have any other info.) and an equal amount in the equity of the company.

    so why is the carrying value taken as zero?

    It is specifically noted in the technical article’s explanation under the heading “Deferred Tax” in the article that “A deferred tax asset will therefore arise which represents the difference between a tax base of the employee’s services received to date and the carrying amount, which will effectively normally be zero.”

    November 13, 2015 at 4:01 pm #282184
    dhameelolar
    Member
    • Topics: 13
    • Replies: 68
    • ☆☆

    Your assumption is correct that the figure for $4.8m is to be recorded in the statement of financial position, the $4.8m would be recorded as a share based payment transaction but from the tax man’s point of view, for tax purposes the value is based on the intrinsic value of the shares issued, this would be a deferred tax asset until when the shares are issued

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