Uncertain tax positions – unit of account An entity has submitted a tax return indicating a current tax liability of £2.5 million. This £2.5 million includes the tax effect of a deduction disputed by the tax authority, the tax effect of which is £500,000. In other words, if the tax authority”s challenge is sustained the entity”s tax liability will in fact be £3 million. The […]

Remeasurement of deferred tax liability recognised as the result of retrospective application An entity”s date of transition to IFRS was 1 January 2004. As a result of the adoption of IAS 37 – Provisions, Contingent Liabilities and Contingent Assets, its first IFRS financial statements (prepared for the year ended 31 December 2005) showed an additional liability for environmental rectification costs of €5 million as an […]

Tax on reclassified (‘recycled’) items On 1 January 2013 an entity purchases for €2,000 an equity security that it classifies as available-for-sale (‘AFS’). At 31 December 2013 it restates the security to its fair value of €2,400, which was also its fair value on 1 May 2014. On 1 July 2014 it disposes of the investment for €2,100. The entity”s tax rate for 2013 is […]

Loss in other comprehensive income and gain in profit or loss offset for tax purposes During the year ended 31 December 2013, an entity that pays tax at 35% makes a taxable profit of €50,000 comprising: €80,000 trading profit less finance costs accounted for in profit or loss; and €30,000 foreign exchange losses accounted for in other comprehensive income (‘OCI’). Should the total tax liability […]

Recognition of deferred tax asset in profit or loss on the basis of tax liability accounted for outside profit or loss An entity that pays tax at 30% has brought forward unrecognised deferred tax assets (with an indefinite life) totalling £1 million, relating to trading losses accounted for in profit or loss in prior periods. On 1 January 2013 it invests £100,000 in government bonds, […]

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 […]

Tax deduction for acquisition costs under ‘old’ IFRS 3 Entity A, which pays tax at 40%, acquired 100% of Entity B for €1,000,000 on 1 January 2009. In addition A bore transaction costs, such as professional fees, of €50,000 so that the total purchase price recorded by A for B was €1,050,000. The transaction costs were deductible for tax purposes in the year ended 31 […]

Meaning of ‘vesting period’ – award with vesting conditions only An employee is awarded options that can be exercised, if the employee remains in service for at least three years from the date of the award, at any time between three and ten years from the date of the award. For this award, the vesting period is three years; the exercise period is seven years; […]

Determination of grant date Scenario 1 On 1 January 2013 an entity advises employees of the terms of a share award designed to reward performance over the three years ended 31 December 2015. The award is subject to board approval, which is given on 1 March 2013. Grant date is 1 March 2013. However, the cost of the award would be recognised over the three […]

Applying IFRIC 15 to commercial real estate An entity buys a plot of land for the construction of commercial real estate. It designs an office block and applies for building permission. The entity markets the office block to potential tenants and signs conditional lease agreements. (a) It then markets the office block itself to potential buyers and signs with one of them a conditional agreement […]