Asset non-deductible at date of acquisition later becomes deductible
During the year ended 31 March 2014 an entity acquired an item of PP& for €1 million which it intends to use for 20 years, with no anticipated residual value. No tax deductions were available for the asset. In accordance with IAS 12 no deferred tax liability was recognised on the taxable temporary difference of €1 million that arose on initial recognition of the PP&.
During the year ended 31 March 2015, the government announces that it will allow the cost of such assets to be deducted in arriving at taxable profit. The deductions will be allowed in equal annual instalments over a 10-year period. As at 31 March 2015, the carrying amount of the asset and its tax base are both €900,000. The carrying amount is the original cost of €1 million less two years” depreciation at €50,000 per year. The tax base is the original cost of €1 million less one year”s tax deduction at €100,000 per year.
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