Tax recognised in profit or loss

Learning objectives

• Calculate deferred tax expense for the period from opening and closing balances, excluding amounts recognised in OCI, directly in equity or in a business combination.L2, L3
• Recognise deferred tax expense or income in profit or loss.L1, L2
• Identify changes in deferred tax that occur without any change in the temporary differences (rate, recoverability, manner of recovery).L2

Normative references

• IAS 12 §57The current and deferred tax effects of a transaction or other event are accounted for consistently with the accounting for the transaction or event itself; paras. 58 to 68C implement this principle.
• IAS 12 §58Current and deferred tax are recognised as income or an expense and included in profit or loss for the period, except to the extent that the tax arises from a transaction or event that is recognised outside profit or loss (in other comprehensive income or directly in equity) or from a business combination.
• IAS 12Most deferred tax liabilities and assets arise where income or expense is included in accounting profit in one period but in taxable profit in a different period; the resulting deferred tax is recognised in profit or loss.
• IAS 12 §60The carrying amount of deferred tax assets and liabilities may change even though there is no change in the amount of the related temporary differences, in particular as a result of: (a) a change in tax rates or tax laws; (b) a reassessment of the recoverability of deferred tax assets; (c) a change in the expected manner of recovery of an asset. The resulting deferred tax is recognised in profit or loss, except to the extent that it relates to items previously recognised outside profit or loss.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

37 questions

• Cassevin has current tax of {current_tax}. Its deferred tax liability increased by {dtl_increase_total} in total, of which {dtl_increase_oci} relates to a land revaluation recognised in other comprehensive income (case data); the rest arises from depreciation differences recognised in profit or loss. Compute deferred tax expense in profit or loss and tax expense in profit or loss.L2
• At the end of its first year of activity, Brunelière identifies a taxable temporary difference of {temporary_difference} on its equipment, depreciated faster for tax; no deferred tax existed at the start of the year. The expected rate is {tax_rate}%. Record the entry, the difference arising from depreciation recognised in profit or loss.L2
• The leasing company Orbecque recognises accrued interest taxed only when received (case data). The related deferred tax liability was {opening_dtl} at the start of the year; at the reporting date, the temporary difference reaches {closing_temporary_difference}, at the expected rate of {tax_rate}%. Record the change, entirely related to income recognised in profit or loss.L2
• Carmaux's machine is reaching the end of its tax depreciation: accounting depreciation now exceeds tax depreciation and the taxable difference is decreasing. The deferred tax liability was {opening_dtl} at the start of the year; the temporary difference is only {closing_temporary_difference} at the reporting date, at the expected rate of {tax_rate}%. Record the change.L2
• Ombrival holds two machines depreciated faster for tax. At the reporting date, the taxable temporary differences are {difference_machine_a} (machine A) and {difference_machine_b} (machine B); the expected rate is {tax_rate}% and the deferred tax liability was {opening_dtl} at the start of the year. Record the change in profit or loss.L2
• At the end of its first year, Pradelune identifies a deductible temporary difference of {deductible_difference}, arising from provisions recognised in profit or loss and deductible when paid. Sufficient taxable profit is probable; the expected rate is {tax_rate}%. No deferred tax existed at the start of the year. Record the entry.L2
• At the distributor Fenestrelle, provisions for returns, deductible when customers are refunded, are increasing. The deferred tax asset was {opening_dta} at the start of the year; the deductible difference reaches {closing_deductible_difference} at the reporting date, at the expected rate of {tax_rate}%, sufficient taxable profit remaining probable. Record the change in profit or loss.L2
• This year Rocheblave paid a large part of a termination benefit provided for last year; the payment was deducted from its taxable profit. The deferred tax asset was {opening_dta} at the start of the year; the remaining deductible difference is only {closing_deductible_difference} at the reporting date, at the expected rate of {tax_rate}%. Record the change.L2
• Fréjac, which had not recognised an asset for its losses, acquires a business whose future profits, under the tax law of the case, will be able to absorb those losses. How does it account for the deferred tax asset that has become recoverable?L3
• On 1 October 20X6, Isarde absorbs a profitable business; under the tax law of the case, the future profits of the combined entity will be able to absorb {newly_usable_losses} of Isarde's losses, which had not been recognised. Tax rate: {tax_rate}%. Record the entry for Isarde's deferred tax asset.L3
• Sivrance carries a deferred tax liability computed at {old_rate}% on a taxable temporary difference of {difference}, arising from accelerated tax depreciation recognised in profit or loss. In November 20X5, an enacted law sets the rate applicable on reversal at {new_rate}%. The difference is unchanged at 31 December 20X5. Compute the liability at the reporting date and the deferred tax income from the rate change.L2
• Pellonde has deductible temporary differences (provisions deductible when paid, recognised in profit or loss) of {opening_difference} at the start of the year, for which a deferred tax asset is recognised at {old_rate}%. A law enacted in 20X5 raises the rate applicable on reversal to {new_rate}%. At the reporting date, the differences amount to {closing_difference}; the asset remains fully recoverable. Compute the asset at the reporting date and the part of its change due to the rate change alone, measured on the opening differences (breakdown convention of the case).L3
• Norvalis carries a deferred tax liability at {old_rate}% on a taxable difference of {difference}, arising from accelerated tax depreciation. A law enacted in December 20X5 sets the rate applicable on reversal at {new_rate}%. The difference is unchanged. Record the entry at 31 December 20X5.L2
• Bremoise recognises a fully recoverable deferred tax asset at {old_rate}% on deductible differences of {difference} (accrued expenses recognised in profit or loss, deductible when paid). A law enacted before the reporting date raises the rate applicable on reversal to {new_rate}%. Record the adjusting entry at the reporting date.L2
• Deferred tax is recognised as income or an expense in profit or loss for the period, except to the extent that it arises from a transaction or event recognised outside profit or loss or from a business combination.L1
• The tax expense presented in profit or loss is limited to the current tax of the period.L1
• The deferred tax liability recognised in a business combination on acquired assets remeasured to fair value is charged to deferred tax expense in the acquirer's profit or loss.L2
• Xantrel claims accelerated tax depreciation on its machines, which are depreciated on a straight-line basis in the accounts; its deferred tax liability increases by 18,000 over the year. Where is this increase recognised?L1
• Which of the following deferred tax movements of Amberlac is not part of the deferred tax expense in profit or loss?L2
• For the year, Belvize recognises current tax of 300,000, deferred tax expense of 40,000 arising from items in profit or loss and a deferred tax liability of 25,000 on a revaluation recognised in other comprehensive income. What tax expense does it present in profit or loss?L2
• Cendrolle's deferred tax liability moves from {opening_dtl} at the start of the year to {closing_dtl} at the reporting date. During the year, {dtl_in_oci} of this increase is the tax on a building revaluation recognised in other comprehensive income. Compute the deferred tax expense in profit or loss.L2
• Ermitane has an opening deferred tax liability of {opening_dtl} and an opening asset of {opening_dta}; at the reporting date, {closing_dtl} and {closing_dta}. During the year, it issued a convertible loan: a deferred tax liability of {dtl_in_equity} was charged directly to the equity component. Compute the deferred tax income in profit or loss.L2
• In the Folgare group's consolidated financial statements, the net deferred tax liability moves from {opening_net_dtl} to {closing_net_dtl}. During the year, the group acquired a subsidiary in a business combination that gave rise to a deferred tax liability of {acquired_dtl}, and recognised {oci_dtl} of deferred tax on a revaluation in other comprehensive income. Compute the deferred tax expense in consolidated profit or loss.L3
• Gavrance has taxable profit of {taxable_profit}, taxed at the enacted rate of {rate}%. During the year, its deferred tax liability increases by {dtl_increase} and its deferred tax asset by {dta_increase}, both movements arising from items recognised in profit or loss. Compute current tax and the total tax expense in profit or loss.L2
• Hastrane, whose temporary differences all arise from items in profit or loss, has taxable differences of {opening_taxable} at the start of the year and {closing_taxable} at the reporting date, and deductible differences of {opening_deductible} and {closing_deductible}. The rate, unchanged, is {rate}%; the deferred tax assets are recoverable. Compute the deferred tax expense for the year.L3
• At the reporting date, Isolvane's deferred tax liability arising from accelerated tax depreciation must increase by {dtl_increase}. Record the entry.L1
• Jorvelle deducted for tax purposes, when incurred, development costs capitalised in the accounts (tax data of the case). In 20X6, their amortisation in the accounts reduces the taxable difference by {reversal}; the rate is {rate}%. Record the deferred tax entry for 20X6.L2
• Kastrel recognises as an expense a warranty provision of {provision}, deductible for tax purposes when paid (tax data of the case). The rate is {rate}% and Kastrel will have sufficient taxable profits. Record the deferred tax entry.L2
• Mazelvane owes {current_tax} of current tax, not yet paid. Its deferred tax movements, all arising from items in profit or loss, are an increase in the liability of {dtl_increase} and a decrease in the asset of {dta_decrease}. Record the tax entries at the reporting date.L2
• Nectaval's deferred tax liability increased by 70,000: 40,000 from accelerated tax depreciation and 30,000 from a land revaluation recognised in other comprehensive income. The accountant recorded a single entry: deferred tax expense 70,000 / deferred tax liability 70,000. Where is the error?L2
• The Quintaris group's net deferred tax liability increases by 90,000 over the year. The increase includes 50,000 arising from the acquisition of a subsidiary (business combination) and 10,000 of tax on actuarial gains and losses recognised in other comprehensive income (accounting treatment given by the case). The rest arises from items in profit or loss. What deferred tax expense does the group present in profit or loss?L3
• Sorbanel writes down a production line measured at cost by 160,000; the loss is recognised in profit or loss. Under the legislation in the case, the loss will only be deductible on disposal, which creates a deductible temporary difference. The rate is 25% and sufficient taxable profits are expected. What deferred tax effect does Sorbanel recognise?L3
• Ondravel reduces, for lack of sufficient future taxable profits, the deferred tax asset relating to provisions recognised in profit or loss; the deductible differences are unchanged. As the differences have not changed, this reduction does not affect profit or loss.L2
• Which of the following situations of Squirelle changes its deferred tax balances without any change in the amount of its temporary differences?L2
• After a lower rate is enacted, Vauclarde reduces by 24,000 its deferred tax liability, which arises solely from accelerated tax depreciation. It recorded: debit deferred tax liability 24,000, credit reserves (equity) 24,000. Where is the error?L2
• For which of the following items of Zarvenne is deferred tax recognised outside profit or loss?L2
• Arquevin takes the current tax on its operating profit directly to equity, so as not to reduce reported profit.L1