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Tax Base of an asset should either be equal to (1) its carrying amount or to (2) any future tax deduction.
“Interest receivable has a carrying amount of £1000 and The related interest revenue will be taxed on a cash basis.”
The tax base of interest receivable here is Nil. Why is that?I believe it’s because interest will be taxed on a receipts basis. So there is no difference between its carrying value and the amount which will suffer tax. If it were taxed on a receivables basis, ie an accruals basis, the company would then have been taxed on a benefit not yet received and so would have a deferred tax asset
Please help to clarify this issue in greater detail.
It seams to be logical that for tax purpose value of asset is Nil as cash is not yet received therefore tax base is Nil.
However definition of tax base of asset is confusing.
According to it why tax base is not £1000? The cash that entity will receive in the future will be taxable and there are future tax deductions or not?
tax base of asset=future tax deductions=1000It would be more sensible for tax base of an liability : tax base=carrying value less future tax deductions=1000-1000=0
I believe that it’s because it’s not yet been received and only when it HAS been received will it attract tax
That asset of interest receivable is not taxable and therefore it has a nil tax base – there will be no tax calculated relating to this interest receivable asset – there are no tax implications
Does that explain it?
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