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sorry i dont know why it wont let me reply. according to what you have said below, does that mean that unrealsied profit includes tax in that year so we will need to debit the tax deferred tax nxt year.?
If goods were transferred at $3m and there are $1.8m still in inventory, that’s 60% of $3.
Profit recognised was $1m
60% of $1m is $600,000
It’s a temporary difference because, next year when the goods are sold, the difference will “unwind”
When the dividend is declared, in the books of Air, the entry will be debit retained earnings and credit liabilities
In the records of Cohort, the entry will be debit receivables and credit investment income
When the dividend is actually paid, in the records of Air, the entry will be debit liabilities and credit cash.
In the records of Cohort, the entry will be debit cash and credit receivables
So long as no dividend has yet been declared, I don’t see any tax implication. Maybe “in the solutions….”?
If I have understood you correctly (your post is merely a repeat of my previous post!) yes, the current tax liability is increased but so too is the deferred tax asset
Thanks Mike
In terms of IAS12 it is argued that deferred tax asset or liability does not meet the definition of assets and liabilities in the conceptual framework of financial reporting. why is this?
An asset is a resource available to a company arising from some past event the use of which will likely bring an increase in economic benefit to the company and is capable of reliable measurement.
Similarly, a liability is an obligation (legal or constructive) arising from some past event the settlement of which will probably involve the outflow of economic resource, capable of reliable measurement.
It’s that element of “reliable measurement” that causes conceptual problems
Hi Mike
So basically deferred tax asset does not give rise to any economic benefits not cash flows but rather reduces income tax it is conflicting with the definition of assets?
Thanks
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