CERTYNEX IFRS ACADEMY

An entity issues a compound financial instrument; in its jurisdiction, the tax base of the liability component equals the total of both components. How does it treat the taxable difference arising from the separation of the equity component?

It recognises the deferred tax liability as an expense for the year.

It recognises a deferred tax liability charged to the equity component; subsequent changes go to profit or loss.

It recognises a deferred tax asset on the liability component.

It applies the initial recognition exception, as separating the components affects neither accounting profit nor taxable profit.