Tax deductions for defined benefit pension plans
At 1 January 2013 an entity that pays tax at 40% has a fully-funded defined benefit pension scheme. During the year ended 31 December 2013 it records a total cost of €1 million, of which €800,000 is allocated to profit or loss and €200,000 to other comprehensive income (‘OCI’). In January 2014 it makes a funding payment of €400,000, a tax deduction for which is received through the current tax charge for the year ended 31 December 2014.
Assuming that the entity is able to recognise a deferred tax asset for the entire €1 million charged in 2013, it will record the following entry for income taxes in 2013.
|
e |
e |
|
|
Deferred tax asset [C1,000,000 @ 40%] |
400,000 |
|
|
Deferred tax income (profit or loss) [C800,000 ® 40%l |
320,000 |
|
|
Deferred tax income (OC1) [C200,000 ® 40%] |
80,000 |
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