Elimination of intragroup profit (1)
H, an entity taxed at 30%, has a subsidiary S, which is taxed at 34%. On 15 December 2013 S sells inventory with a cost of €100,000 to H for €120,000, giving rise to a taxable profit of €20,000 and tax at 34% of €6,800. If H were preparing consolidated financial statements for the year ended 31 December 2013, the profit made by S on the sale to H would be eliminated.
Under IAS 12, a deferred tax asset would be recognised on the unrealised profit of €20,000, based on H’s 30% tax rate, i.e. €6,000. The additional €800 tax actually paid by S would be recognised in profit or loss for the period ended 31 December 2013, the accounting entry being:
|
DR |
CR |
|
|
Current tax (profit or loss) |
6,800 |
|
|
Current tax (balance sheet) |
6,800 |
|
|
Deferred tax (balance sheet) |
6,000 |
|
|
Deferred tax (profit or loss) |
6,000 |