IAS 12 · Case studies (Step 3 of 5)
Practical case
IAS 12 Income Taxes — wording before IFRS 18Applicable today
Applies to annual periods beginning before January 1, 2027.
Peltrane SA, a fictitious company that designs and manufactures analysis equipment for laboratories (310 employees, one plant, one leased warehouse), IFRS financial statements, year end 31 December, amounts in euros. A single taxable entity, under a single tax authority.
L1 · Guided · Year N — year end at 31 December N
You follow Peltrane's income tax over three years: current tax for N (level 1), deferred tax at the N year end with a lease (level 2), a rate cut announced but not enacted, the revaluation of land and an uncertain tax treatment in N+1 (level 3), then a tax loss, a carryback, an asset on losses, the outcome of the audit and the tax note in N+2 (level 4). All figures and all tax rules (deductibility, rates, loss relief) are case data; professional judgements are flagged as such and no method chosen by Peltrane is presented as required by the standard. Teaching assumption: amounts rounded to the euro, summary entries.
Standard involved: IAS 12 Income Taxes. Peltrane is closing its first year under IFRS with a tax department that thinks in terms of the tax return, and you must translate its figures into the accounts. Start by sorting the tax adjustments (which ones will reverse one day, which ones are permanent), then calculate current tax and record the entry. The questions are guided and follow on from each other: each one prepares the next.
Fundamental level: the method, help and references are shown.
Method
File checklist
2 / 6 stages reached
Context · Dated fact of the file
Peltrane SA, a fictitious company that designs and manufactures analysis equipment for laboratories (310 employees, one plant, one leased warehouse), IFRS financial statements, year end 31 December, amounts in euros. A single taxable entity, under a single tax authority.
Initial event · L1·Year N — year end at 31 December N · Current stage
Standard involved: IAS 12 Income Taxes. Peltrane is closing its first year under IFRS with a tax department that thinks in terms of the tax return, and you must translate its figures into the accounts. Start by sorting the tax adjustments (which ones will reverse one day, which ones are permanent), then calculate current tax and record the entry. The questions are guided and follow on from each other: each one prepares the next.
Pieces added
New information · L2·Year N — year end at 31 December N · Upcoming: unlocks after the current stage
New period · L3·Year N+1 — year end at 31 December N+1 · Upcoming: unlocks after the current stage
New period · L4·Year N+2 — year end at 31 December N+2 · Upcoming: unlocks after the current stage
Conclusion · Upcoming: unlocks after the current stage
1 document to work from at this level.
Document 1Supporting document
| Item for N | Amount |
|---|---|
| Accounting profit before tax | 2,400,000 |
| Fine for breaching transport regulations (expense, never deductible) | 60,000 |
| Charge to the warranty provision (deductible when repairs are paid; no repair paid in N) | 180,000 |
| Accounting depreciation of the machining line bought for 5,000,000 on 1 January N (10 years) | 500,000 |
| Tax depreciation of the same line (declining balance allowed by tax law) | 800,000 |
| Development costs of an analyser, capitalised under IAS 38 (criteria met, analyser not yet ready for use), deducted for tax in the year incurred | 400,000 |
| Dividends received from an investment, exempt from tax | 40,000 |
| Tax instalments paid in N (recognised as a current tax asset when paid) | 430,000 |
Income tax rate enacted for N and later years: 25%. All the tax adjustments above are data of the case's tax law, not rules of IAS 12.
First level: all the data is in the brief and the pieces of this level.
5 parts to answer, marked when you submit the level.
Find the useful facts in the pieces before concluding.
Part 1 · Classification · Recognition
Classify each tax adjustment for N according to its effect on deferred tax.
Non-deductible fine (60,000)
Warranty provision deductible when paid (180,000)
Tax depreciation of the line above accounting depreciation (300,000)
Capitalised development costs already deducted for tax (400,000)
Exempt dividends (40,000)
4 more questions will appear once the current question is complete.
Your working draft for this file: points noted, leads, intermediate calculations.
Saved on this device only; never graded.
Answer every part to submit the level and see the conclusion.
Normative references