No discounting

Learning objectives

• Explain why deferred tax assets and liabilities are not discounted.L1, L2

Normative references

• IAS 12 §53Deferred tax assets and liabilities are not discounted.
• IAS 12 §54Reliable discounting would require detailed scheduling of the timing of the reversal of each temporary difference, which is often impracticable or highly complex; permitting but not requiring it would undermine comparability: the standard therefore neither requires nor permits discounting.
• IAS 12 §55Temporary differences are determined by reference to the carrying amount of an asset or liability.

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

9 questions

• Deferred tax assets and liabilities are not discounted.L1
• An entity with a reliable schedule of reversal of its temporary differences may choose to discount its deferred tax liabilities.L1
• The amount of a temporary difference is determined from the carrying amount of the asset or liability concerned, not from a discounted estimate of future tax cash flows.L2
• Orvalde has a taxable temporary difference that will only reverse in fifteen years. How is the related deferred tax liability measured?L1
• What justification does the standard give for not discounting deferred tax?L1
• Plemara computes a deferred tax liability of 200,000 on a taxable difference that will reverse in ten years. Its finance director proposes discounting it at 5% a year, giving about 122,783. What amount does Plemara recognise?L2
• Brasquine has deductible differences giving a recoverable deferred tax asset of 90,000, which will reverse in six years. Its internal auditor suggests discounting it at 4%, giving about 71,128, 'for consistency with provisions'. What asset does Brasquine recognise?L2
• In Quervane's financial statements, the deferred tax liability relating to accelerated tax depreciation (360,000 of expected tax, reversing over twelve years) is shown at 241,000, an amount discounted at the group's borrowing rate. Where is the error?L2
• Ursenac's accounting policy note states: 'Deferred taxes expected to reverse after more than five years are discounted when a reliable schedule is available; the others are not.' What is the problem?L2