IAS 12Chapter 4Lesson 4
The initial recognition exception and equal differences
Step 1 of 9Learning objectives
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When an asset or liability is first recognised with a carrying amount different from its tax base, no deferred tax is recognised if the transaction is not a business combination, affects neither accounting profit nor taxable profit and does not create equal taxable and deductible differences. Since 2021, lessee leases and decommissioning obligations, which often create two equal differences, are excluded from it. Grants deducted from the carrying amount remain within the exception; compound instruments do not fall within it.
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Learning objectives
- Identify the three conditions of the initial recognition exception.
- Calculate the deferred tax asset and liability arising from a lease or a decommissioning obligation at the outset.
- Analyse an asset whose cost is not deductible, a grant deducted from the carrying amount and a compound instrument against the exception.
- Justify whether or not the exception applies according to the tax legislation of the case.