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In December 20X5, Mighty IT Co revalued its corporate headquarters. Prior to the revaluation, the carrying amount of the
building was $2m and it was revalued to $2·5m.
Mighty IT Co also revalued a sales office on the same date. The office had been purchased for $500,000 earlier in the
year, but subsequent discovery of defects reduced its value to $400,000. No depreciation had been charged on the sales
office and any impairment loss is allowable for tax purposes.
Mighty It Co’s income tax rate is 30%the carrying amount, tax base and temporary difference is 400000, 500000 and thus 100000
after the impairment loss, will the it now be
400000, 400000 and no temporary difference
Yes, after the impairment there will be no temporary difference because the $100,000 impairment write-down has already been allowed for tax purposes and this year’s current tax will be reduced by 30% x $100,000 so there’s now only $400,000 tax base upon which to claim capital allowances in the future
OK?
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