IFRS PRACTICAL IMPLEMENTATION GUIDE AND WORKBOOK

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Wiley IFRS: Practical Implementation Guide and Workbook

also be charged or credited directly to equity. For example, a change in the carryi ng amount of property due to a revaluation may lead to tax consequences which will be credited or charged to equity . 10.3 Any tax arising from a business combination should be recognized as an identifiable asset or liability at the date of acquisition. 10.4 Current tax assets and current tax liabilities should be offset in the balance sheet only if the enterprise has the legal right and the intention to settle these on a net basis and they are levied by the same taxation authority. 10.5 The tax expense relating to profit or loss for the period should be presented on the face of the income statement, and the principal elements of the expense should also be disclosed. Practical Insight Rockwood International AlS, a Danish entity, discloses that in its financial statements to De– cember 3 I , 200 I , within deferred tax assets, a setoff of 63 million Danish krona has taken place; within deferred tax liabilities, a setoff of 37 million Danish krona has occurred. There are certain conditions set out in lAS 12 as to the situations where setoffs of deferred tax assets and liabilities can occur. 11. DIVIDENDS 11.0.1 There are certain tax consequences of dividends. In some countries, income taxes are pay– able at different rates if part of the net profit is paid out as dividend. 11.0.2 lAS 12 requires disclosure of the potential tax consequences of the payment of dividends . 11.1 The Effect of Share Payment-Based Transactions In some juri sdictions, tax relief is given on share-based payment transactions. A deductible temporary difference may arise between the carrying amount which will be zero and its tax base which will be the tax relief in future periods. A deferred tax asset may therefore be recognized. Facts A parent has recognized in its own financial statements a dividend receivable of $500,000 from an 80%-owned subsidiary . The dividend is not taxable in the country in which the entity operates. Required Calculate the temporary difference arising from the recognition of the dividend receivable in the ac– counts of the parent. Solution Zero. There is no temporary difference arising in respect of the dividend as the carrying amount of $500,000 is the same as the tax base. 12. DISCLOSURE: KEY ELEMENTS For disclosure, requirements to the standard are quite extensive. For example (a) lAS 12 requires an explanation of the relationship between tax expense and accounting profit. (b) The basis on which the tax rate has been computed should be disclosed as well as an explanation of any changes in the applicable tax rate. (c) The aggrega te current and deferred tax that relates to items that are recognized directly in equity should be disclosed. (d) The aggregate amount of temporary differences assoc iated with companies for which no deferred tax liabilit ies have been recognized should be disclosed. (e) The net deferred tax balances of the current and the previous period should be analyzed by types of temporary difference and types of unused tax loss and unused tax credits. Case Study 10