Deferred tax do we need to adjust?

Prior year accounts no deferred tax charged what to do for FRS 102?

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No defered tax was charged to the accounts as it was believed that the following year's accounts would be prepared under FRS 105. But now as the accounts will be required by the bank for borrowings the accounts will be prepared under FRS 102. There is a material amount of deferred tax to charge, what do we need to do now, just charge it to the current year's accounts or do we have to adjust prior year's accounts? 

  

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By johngroganjga
17th Oct 2017 15:59

As last year's accounts were materially wrong you have a PYA. You may have others with the adoption of FRS 102 of course.

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RLI
By lionofludesch
17th Oct 2017 17:58

Short answer is yes - but is it material ?

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Replying to lionofludesch:
By johngroganjga
17th Oct 2017 18:44

See the fourth word in the OP’s last sentence.

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By Di
18th Oct 2017 10:11

Thanks for your advice.If we prepare micro entity accounts then we would not have to include deferred tax so no adjustment. So in practice how are the banks reacting to micro entity accounts?

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Replying to Di:
By johngroganjga
18th Oct 2017 10:18

No idea.

If I was sending a bank micro entity accounts for a client with a material deferred tax liability I would also tell them what the unprovided deferred tax was. But maybe that's just me.

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Replying to Di:
RLI
By lionofludesch
18th Oct 2017 11:58

Di wrote:

Thanks for your advice.If we prepare micro entity accounts then we would not have to include deferred tax so no adjustment.

"Must not", not "would not have to".

However, if you prepare FRS 102 accounts this year, then the comparatives must also be FRS 102. You need to adjust your FRS 105 figures from last year.

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By Di
18th Oct 2017 13:07

So how do I adjust the previous years accounts? Do I just amend them to include the deferred tax, then send them to Companies House and the tax office. Companies House will leave the original accounts on file and there's no corporation tax effect.

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Replying to Di:
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By lionofludesch
18th Oct 2017 13:17

You have to re-prepare them under FRS 102.

That might be just including a deferred tax provision. It might not. You don't give enough information.

If it's just deferred tax, there's no effect on taxable profit so HMRC aren't interested.

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Replying to Di:
By johngroganjga
18th Oct 2017 13:48

You don’t amend last year’s accounts at all. You have a PYA in the next accounts. See my first response above.

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Replying to johngroganjga:
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By lionofludesch
19th Oct 2017 12:42

I apologise if I've not made myself clear. What I meant was that the accounts need to be re-prepared and these new figures used as restated comparatives on this year's accounts.

I don't agree that a PYA is right. It's not what we did when we moved from FRSSE to FRS 105 and I don't agree it's right to simply have a PYA when moving from FRS 105 to FRS 102.

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By Matrix
18th Oct 2017 13:59

If there was a material amount of deferred tax last year and you were preparing accounts under the FRSSE then it should have been booked then. I don't really understand why it wasn't booked just because you expected to prepare micro accounts for the following period.

In any case, even if I have misunderstood, you have the answers above, it is a PYA, so you just change the comparatives. There are plenty of threads on this already if you need help with the entries.

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All Paul Accountants in Leeds
By paulinleeds
19th Oct 2017 11:37

Just to be clear and give another writers perspective.

As John says, if you change from one accounting basis from one year to another e.g. from FRS102, FRS105 or GAAP, FRSSE etc, to another of the bases, you never change the previous year's (filed) accounts.

What you do is change the comparative values shown in the following year's accounts shown alongside the actual amounts of the following year. The comparatives must be comparable i.e they are prepared under the same set of rules as the current year. Only if the comparatives are materially incorrect to what they should be would you change them through a PYA (Prior year adjustment) i.e. you restate the comparatives amounts in the current year's accounts to be on the same basis.

Obviously, Deferred Tax (DT) is a matching / balancing issue. It only affects the tax charge line on the P&L Account and creates a change on the Balance Sheet amount (normally a credit for Deferred Taxation).

Therefore, if you expect a change from FRS102 to FRS105 the following year, you still have to prepare the first set of (FRS102) accounts on the full DT basis.

It is only on the second year (when FRS105 accounts are prepared) that you would change the second year's comparatives and remove all traces of DT eg through accumulated Profit & Loss Account reserve brought forward.

I see no logic in excluding DT from a set of accounts under FRS105, especially if the DT amount is material (there is a real danger of paying our dividends on the basis of higher reserves). I'm sure most unqualified (accountants) people who prepare accounts do not understand DT and therefore it has traditional not been included in accounts for this reason by these type of people. Is that the reason why DT is strictly prohibited from being shown in accounts? If that is the case, it's like saying I do not understand repairs from fixed assets and what is depreciation. I wish they'd at least 'allow' people to include DT in FRS105 accounts.

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paddle steamer
By DJKL
19th Oct 2017 13:07

One thing you may also want to consider is adding an accounts note re changes to the comparatives.

When I did ours (early adoption so it was YE 31.12.15 and the 31.12.14 comparatives needed amended) I had a fair bit of mucking about re revaluation reserve elimination and recognising property valuation uplifts through the I & E rather than revaluation reserve. As these were pretty big changes > £100,000, I tried to explain in a note to the accounts to make it easier for our bank to follow what was happening and why the 2014 comparatives did not marry with the accounts they had previously received.

In addition the deferred tax , previously through the revaluation reserve, was also now through the I & E.

Must say the software I used (Taxcalc) took a bit of work to get something approaching what I wanted, the catch using software is that it is often not as flexible as old style typed accounts (But is a lot faster and less error prone)

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