Facts
Balance Sheet at January 1, 20X4
|
Local GAAP |
|
|
$m |
|
|
Property, plant, and equipment |
7,000 |
|
Goodwill |
$3,000 |
|
Intangible assets |
2,000 |
|
Financial assets |
6,000 |
|
Total noncurrent assets |
18,000 |
|
Trade and other receivables |
$7,000 |
|
Other receivables |
1,600 |
|
Cash and cash equivalents |
700 |
|
Total current assets |
9,300 |
|
Total assets |
27,300 |
|
Issued capital |
6,000 |
|
Revaluation reserve |
1,500 |
|
Retained earnings |
6,130 |
|
Total equity |
13,630 |
|
Interest bearing loans |
8,000 |
|
Trade and other payables |
4,000 |
|
Employee benefits |
1,000 |
|
Current tax liability |
70 |
|
Deferred tax liability |
600 |
|
Total liabilities |
13,670 |
|
Total equity and liabilities |
27,300 |
(a) Tax bases of the above assets and liabilities are the same as their carrying amounts except for
|
Tax base |
|
|
$m |
|
|
Property, plant, and equipment |
1,400 |
|
Trade receivables |
7,500 |
|
Interest bearing loans |
8,500 |
|
Financial assets |
7,000 |
• The intangible assets are development costs that are allowed for tax purposes when the cost is incurred. The costs were incurred in 20X2.
• Included in trade and other payables is an accrual for compensation to be paid to employees.
It is allowed for taxation when the payment is made and totals $200 million.
(b) During 20X3, a building was revalued. At January 1, 20X4, there was $1500 million remaining in the revaluation reserve in respect of this building.
(c) The following adjustments to the financial statements will have to be made to comply with IFRS 1, First Time Adoption of IFRS, on January 1, 20X4:
• Intangible assets of $400 million do not qualify for recognition under IFRS 1.
• The financial assets are all classified as at fair value through profit or loss and their fair value is $6,500 million, which is to be included in the IFRS accounts.
• A pension liability of $50 million is to be recognized under IFRS 1 that was not recognized under local generally accepted accounting principles (GAAP). The tax base of the liability is zero.
(d) The entity is likely to be very profitable in the future.
Required
Calculate the deferred tax provision at January 1, 20X4, showing the amount of the adjustment required to the deferred tax provision and any amounts to be charged to revaluation reserve. (Assume a tax rate of 30%.)