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Hi
ACCA P2 June 2014, Q2 (b).
I understand the deferred tax arises from the difference in the property being depreciated over 12 years and for tax purposes 8 years. Temporary difference right?
However, the solution states the temp difference arises due to the FX differences. I dont understand.
Additionally, the solution is translating the asset at year end using the historical rate – do we not translate all assets at year end using the closing rate?
And how do we know whether to use the tax rate in foreign region?
Please help if you can.
Thanks
Very old question from an earlier syllabus.
Branches are (often) more like foreign transactions than subsidiaries – in which a property would be a non-monetary asset – so you would use historic rate.
Apparently there was some argument at the time about which exchange rate to use for deferred tax.
Perhaps he was thinking that FX gains are like revaluations, and therefore, on sale of the asset, the parent would make more money when the gains were realised and would therefore pay tax.
The tax rate would depend on the local legislation – branch taxation is complex but way outside our syllabus.
That’s as much as I can say – except practice the more recent questions. 🙂
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