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Deferred Tax on Development Costs

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA SBR Exams › Deferred Tax on Development Costs

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by Stephen Widberg.
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  • April 4, 2021 at 2:52 pm #615923
    mmkhan7
    • Topics: 12
    • Replies: 2
    • ☆

    Hi,

    I would kindly like you to confirm my understanding of the following:

    Development costs are deducted in full in determining the taxable profits in the year in which they are incurred. When development costs are amortized in future periods, they will not be deductible for tax purposes because they were already deducted in the period in which they were incurred. Hence, they have a tax base of nil and will give rise to a deferred tax liability.

    Is this correct?

    So, basically, we receive tax relief in the year we incur development costs. And when those development costs are amortized in the future, we won’t receive any more tax relief because we have already received it previously. Therefore, we will be paying tax in the future hence the deferred tax liability.

    Thanks

    April 5, 2021 at 12:52 pm #615985
    Stephen Widberg
    Moderator
    • Topics: 10
    • Replies: 2523
    • ☆☆☆☆☆

    Your explanation is wonderful and crystal clear!

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