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Dear sir,
I’m having trouble understanding the calculation formular for the deferred tax asset temporary difference of share-based payment expense.
In the BPP text book:
The deferred tax asset temporary difference is measured as:
Carrying amount of share-based payment expense 0
Less: tax base of share-based payment expense
(estimated amount tax authorities will permit as a deduction
in future periods, based on year end information) (X)
Temporary difference (X)
Deferred tax asset at X% XCould you please kindly clarify why the carrying amount of share-based payment expense is always zero? I think since the the company recognises an expense for the employee services received in return for the share options granted, the carrying amount of share-based payment expense should be X. And the related tax deduction does not arise until the share options are exercised, the tax base of should be zero. Could you kindly point out what’s wrong of my thinking? Thanks.
Is this not owing to the vesting period?
I think the book shows that the carrying amount of share based payment expense as 0 as this is before the exercise. After the exercise they are measured at the grant date value. (example on page 238 of BPP book).
I think that it is owing to deferred tax being recognised from the SOFP position.
With the SBP’s there is no entry to the SOFP until the end of the vesting period, the double entry is to Dr the Income Statement with the movement in the period and Cr Equity. I dont remember why but I do remember that equity is ignored for deferred tax – would be interested to know why?
Therefore the carrying value of the SBP’s is zero the tax base will be the amount that we expect to pay in the future which gives rise to a a deferred tax asset.
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