IAS 12 · Case studies (Step 3 of 5)
Case study
IAS 12 Income Taxes — wording before IFRS 18Applicable today
Applies to annual periods beginning before January 1, 2027.
Valcrozet SA (a fictitious entity) manufactures technical ceramics. In 20X4, it leases a warehouse, brings into service a kiln subject to a dismantling obligation, acquires a licence, receives a grant, obtains control of Lantimar SAS (a fictitious entity) and issues a convertible bond. All entities are subject to the same taxation authority. For the 20X4 consolidated financial statements, you are preparing the deferred tax analysis of each transaction at the date of its initial recognition.
Your assignment
For each transaction, determine the temporary differences arising on initial recognition, assess whether a recognition exception applies, calculate the deferred tax assets and liabilities (recognised or not) and the net deferred tax of the single transactions, record the required entries and measure their impact.
Work on this file as you would in practice: read the situation, open the documents, sort the useful information, then carry out the work requested. The solution is revealed once you submit.
Advanced level: no help, the work is grouped by kind.
Document 3
Document 5
Document 4
Document 1
Document 2
Document 6
8 documents: open each one to read it.
Document 1Contract
Warehouse lease, commencement date 1 July 20X4. At that date, Valcrozet recognises a lease liability of 480,000 and a right-of-use asset of 480,000 (no lease payments made in advance, no initial direct costs and no restoration costs). Under the tax law, lease payments are deductible when paid; neither the depreciation of the right-of-use asset nor the repayment of the lease liability gives rise to any other deduction.
The figures of the documents, gathered for your work.
| Item | Value | Found in |
|---|---|---|
| Lease commencement date | July 1 20X4 | |
| Lease liability at the commencement date | €480,000.00 | |
| Right-of-use asset at the commencement date | €480,000.00 | |
| Date the kiln was brought into service | October 1 20X4 | |
| Purchase price of the kiln | €700,000.00 | |
| Dismantling provision when brought into service | €160,000.00 | |
| Licence acquisition date | March 1 20X4 | |
| Cost of the licence | €200,000.00 | |
| Date the grant was received | May 2 20X4 | |
| Amount of the grant | €150,000.00 | |
| Date control of Lantimar was obtained | April 1 20X4 | |
| Goodwill at the acquisition date | €900,000.00 | |
| Impairment loss on goodwill in 20X4 | €100,000.00 | |
| Issue date | December 1 20X4 | |
| Issue proceeds | €2,000,000.00 | |
| Liability component | €1,760,000.00 | |
| Equity component | €240,000.00 | |
| Enacted tax rate | 25% | |
| Annual insurance premium | €12,000.00 |
Not every document matters: identify those that affect the accounting treatment.
Part 1 · Classification · Analysis
Sort each document: does it affect the accounting treatment?
Drag each item into its category, or tap the category under the item.
Warehouse lease
Technical memo on the kiln
Licence invoice
Grant award decree
Consolidation memo
Convertible bond issue agreement
Tax department memo
Insurance quote for the kiln
8 tasks in the order of the file. Calculations, entries and effects on the financial statements are marked; written answers are self-assessed against the solution.
Task 1Analysis
Identify, for each transaction, the date and nature of initial recognition.
Task 2Calculation
Calculate the temporary differences arising on initial recognition (and that of goodwill at the reporting date).
Part 1 · Calculation
Calculate the temporary differences arising on initial recognition (and that of goodwill at the reporting date).
Result: Taxable difference, liability component of the convertible bond
Task 3Professional judgement
For each transaction, does a recognition exception apply? Give reasons.
Task 4Calculation
Calculate the deferred tax assets and liabilities, recognised or not.
Part 1 · Calculation
Calculate the deferred tax assets and liabilities, recognised or not.
Result: Unrecognised deferred tax liability, goodwill at the reporting date
Task 5Calculation
Calculate the net deferred tax of the two single transactions (lease, dismantling).
Part 1 · Calculation
Calculate the net deferred tax of the two single transactions (lease, dismantling).
Result: Net deferred tax, dismantling
Task 6Journal entries
Record the deferred tax entries for the lease, the kiln and the convertible bond.
Part 1 · Journal entry · Journal entries
Entry 1 of 3
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Part 2 · Journal entry · Journal entries
Entry 2 of 3
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Part 3 · Journal entry · Journal entries
Entry 3 of 3
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Task 7Effects on the financial statements
What is the impact of these entries on the financial statements?
Part 1 · Classification · Analysis
State the direction of the effect on each financial statement aggregate.
Financial position (balance sheet)
Profit or loss
Other comprehensive income
Equity
Part 2 · Calculation · Analysis
Quantify the effect on the aggregates concerned.
Result: Amount of the effect — Equity
Task 8Conclusion
Write the conclusion.
Your working draft for this file: points noted, leads, intermediate calculations.
Saved on this device only; never graded.
Complete every item of the file to submit it (0 / 12).
Document this file
These working papers use the data and results of this case.
Normative references