Dual-based asset As part of a business combination an entity purchases an opencast mine to which there is assigned a fair value of €10 million. The tax system of the jurisdiction where the mine is located provides that, if the site is sold (with or without the minerals in situ), €9 million will be allowed as a deduction in calculating the taxable profit on sale. […]

Recognising revenue when assets are transferred for services An entity enters into an agreement with a customer involving the outsourcing of information technology (IT) functions. As part of the agreement, the customer transfers ownership of its existing IT equipment to the entity. Initially, the entity must use the equipment to provide the service required by the outsourcing agreement. The entity is responsible for maintaining the […]

BHP Billiton Plc (2005) 1 Accounting policies [extract] The amount of deferred tax recognised is based on the expected manner and timing of realisation or settlement of the carrying amount of assets and liabilities, with the exception of items that have a tax base solely derived under capital gains tax legislation, using tax rates enacted or substantively enacted at period end. To the extent that […]

Awards supplied by a third party A retailer of electrical goods participates in a customer loyalty programme operated by an airline. It grants programme members one airmile with each $1 they spend on electrical goods. Programme members can redeem the airmiles for air travel with the airline, subject to availability. The retailer pays the airline $0.009 for each airmile. In one period, the retailer sells […]

Convertible bond deductible if settled An entity issues a convertible bond for €1 million. After three years, the holders can elect to receive €1.2 million or 100,000 shares of the entity. If the bond were settled in cash, the entity would receive a tax deduction for the €200,000 difference between its original issue proceeds and the amount payable on redemption. If the bond is converted, […]

Rationale for initial recognition exception An entity acquires an asset for €1,000 which it intends to use for five years and then scrap (i.e. the residual value is nil). The tax rate is 40%. Depreciation of the asset is not deductible for tax purposes. On disposal, any capital gain would not be taxable and any capital loss would not be deductible. Although the asset is […]

Non-deductible PP& An entity paying tax at 35% acquires a building for €1 million. Any accounting depreciation of the building is not deductible for tax purposes, and no deduction will be available for tax purposes when the asset is sold or scrapped. Recovery of the building, whether in use or on sale, has tax consequences since the building is recovered through future taxable profits of […]

Recognition of a provision for warranty costs A manufacturer gives warranties at the time of sale to purchasers of its product. Under the terms of the contract for sale, the manufacturer undertakes to make good, by repair or replacement, manufacturing defects that become apparent within three years from the date of sale. On past experience, it is probable (i.e. more likely than not) that there […]

Nokia Corporation (2011) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. Accounting principles [extract] Provisions [extract] Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the amount can be made. When the Group expects a provision […]

Accounting for donations to non-profit organisations An entity decides to enter into an arrangement to ‘donate’ €1m in cash to a university. A number of different options are available for the arrangement and the entity’s management want to determine whether the terms of these options make any difference to the timing, measurement or presentation of the €1m expenditure, as follows: Option 1: The entity enters […]