Share this content

Deferred tax - IFRS16 Transition adjustment

Deferred tax - IFRS16 Transition adjustment

Didn't find your answer?

An old acquiantance...

Reconciling my DTAs and DTLs for my STAT. In regards to Fixed assets I have the following components:

IFRS16: Depreciation is allowable for tax so no deferred. However, an transition adjustment was posted Debit equity 100, Credit fixed assets 100.

I have recognized a deferred for this transition adjustment as we get a permanent tax adjustment in our tax return the next 5 years in relation to the transition adjustment (Prepared by Big4 advisor - but they dont advise on deferred tax without a separate engagement).

Now, currently a show my transition adjustment as "other" in STAT tax note reconciliation.

Could this potentially be grouped under Item "Fixed Assets". Fixed assets relate to Carrying value vs Tax basis for Plant pool.

 

Replies (7)

Please login or register to join the discussion.

avatar
By paul.benny
26th Mar 2021 11:54

So many things here...

"Depreciation is allowable for tax" In what world?

Even though IFRS16 brings operating leases onto the balance sheet, for tax purposes, there's no change and you have to back out all of the right of use assets etc and go back to treating them as leases.

You also talk about deferred tax on a permanent adjustment.... Er .. have you forgotten that deferred tax is about timing differences. Permanent adjustments don't give rise to deferred tax.

Thanks (0)
Replying to paul.benny:
avatar
By johnt27
26th Mar 2021 13:42

I'm guessing by the overzealous use of Z's instead of S's we're looking at a US business where depreciation is typically allowable for tax.

Thanks (0)
Replying to paul.benny:
avatar
By aidious
26th Mar 2021 17:25

I'm afraid you're woefully wrong Paul. Perhaps you are confusing early adopters who had to reverse the accounting entries for tax due to the tax legislation not being in place in time?

Assuming no early adoption, depreciation of ROU assets (along with the interest arising on the liability) is deductible. Tax relief is given for the transitional adjustment over a number of years based on a weighted average calculation and is a deferred tax asset until it fully unwinds.

Thanks (1)
Replying to aidious:
avatar
By paul.benny
29th Mar 2021 09:42

You're right and I was indeed thinking of the early adopters rules.

Correction appreciated.

Thanks (0)
avatar
By accountingdude
26th Mar 2021 12:19

I get that permanent adjustment is not related to tempoary adjustments.
I dont know why the advisor didnt classify IFRS16 transition adjustment as a temporary in the tax return. There is a note to the adjustment saying the net outstanding transition adjustment is 100 K. And every year the next 5 year a permanent deduction of 20K is taken.

Thanks (0)
Replying to accountingdude:
avatar
By paul.benny
26th Mar 2021 13:04

Ask them to explain

Thanks (0)
Flag of the Soviet Union
By thevaliant
26th Mar 2021 21:53

When I am Prime Minister, the first thing I'm doing is mandating that the Flow Through Method is the only method for measuring deferred tax.

The second thing, of course, is to exempt Medium sized companies from audit.

Thanks (0)
Share this content