Continuation of Example 4 in the following year
In the following year 02, entity E”s profit before tax according to IFRS is CU 100. E”s taxable profit for 02 is CU 140. The difference between these amounts arose as follows:
1. On Sep 01, 01, E acquired shares for CU 200 which are accounted for at fair value through other comprehensive income (IFRS 9.5.7.1b and 9.5.7.5). Fair value of the shares is CU 208 as at Dec 31, 02. On Dec 31, 01, fair value was CU 200. In 02, E received a dividend of CU 4 for the period Sept 01, 01 to Dec 31, 01. The dividend is outside the scope of taxation under E”s tax law. According to E”s tax law, the shares are measured at cost.
2. Regarding a lawsuit, E has recognized a provision of CU 100 according to IFRS. The carrying amount of that provision for tax purposes is CU 80.
3. In 02, an amount of CU 16 was paid to E”s non-executive directors. According to E”s tax law, only half of that amount is deductible for tax purposes.
4. On Jan 01, 02, E acquired a building for CU 2,000. The building is available for use on the same day. Under E”s tax law depreciation is 3% p.a. The building”s useful life according to IFRS is 25 years.
5. The carrying amount of a provision of E for tax purposes is CU 4. That provision does not meet the recognition criteria according to IFRS.
Posting status:
Apart from current tax and deferred tax for 02, all necessary entries have already been correctly effected. The current tax liability recognized for the year 01 has already been settled and this has already been entered correctly. The fair value change of the shares has been recognized as follows:
|
Dec 31,02 |
Dr |
Shares |
8 |
||
|
Cr |
Other comprehensive income (fair value reserve) |
8 |
|||
The dividend of CU 4 has been recognized in profit or loss (IFRS 9.5.7.6).
Required
(a) Prepare any necessary entries in E”s financial statements as at Dec 31, 02, with respect to current and deferred tax. The tax rate is 25%. Assume that no tax prepayments (see Example 1) are necessary. Assume for simplification purposes that deferred tax assets (if any) meet the recognition criteria of IAS 12 and that the criteria for offsetting deferred tax assets and deferred tax liabilities in the statement of financial position
(b) Prepare (a) the tax reconciliation in absolute numbers (IAS 12.81(c)(i)) as well as (b) the tax rate reconciliation (IAS 12.81(c)(ii)) for 02.