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How to determine tax base for asset and liability? Why it can be nil sometimes? What is the reason behind?
Tax base can be different to accounting values because:
– tax allowable depreciation rate is different to accounting revaluation rate e.g. asset is depreciated at 20% straight line in the accounts but tax allowable depreciation is 12.5% reducing balance
– asset was subject to an allowance such as AIA or FYA so its tax written down value is nil or greatly reduced
– other reasons
However, in F7 you won’t be asked to calculate the tax base for an asset. This is something you would do in F6, not F7. In F7 if you need to make an adjustment because the tax base is different, the tax base of the asset will be given to you in the question.
You may need to calculate the carrying value of the asset under IFRS and/or make an adjustment to deferred tax in the P&L or BS as a result of this, but you won’t need to calculate the value of the asset for tax purposes.
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