assess whether the expenses for employee training have to be recognized as an intang 613292

Inception of loan with non-deductible issue costs

A borrowing entity paying tax at 30% records a loan at £9.5 million, being the proceeds received of £10 million (which equal the amount due at maturity), less transaction costs of £500,000, which not deductible for tax purposes either in the period when the loan is first recognised or subsequently. For financial reporting purposes, IAS 39 requires the costs, together with interest and similar payments, to be accrued over the period to maturity using the effective interest method.

Inception of the loan gives rise to a taxable temporary difference of £500,000, being the difference between the carrying amount of the loan (£9.5 million) and its tax base (£10 million). This analysis is explained in more detail at 6.2.1.B above.

Initial recognition of the transaction costs gives rise to no accounting loss (because they are included in the carrying amount of the loan) or tax loss. Accordingly, the initial recognition exception applies and no deferred tax liability is recognised.

If the same loan (including the unamortised transaction costs) had been recognised as part of a larger business combination, the initial recognition would not have applied. Deferred tax of £150,000 (£500,000 @ 30%) would have been provided for, with a corresponding increase in goodwill (or decrease in any bargain purchase gain).