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| Old GAAP | FRS 102
|
Further Comment On Differences |
| Corporation Tax | Income Tax (S.29) | |
| Current tax is the amount of tax estimated to be payable or recoverable in respect of the taxable profit or loss for the period, along with adjustments to estimates in respect of previous periods. | Same as old GAAP. | No differences. |
| Current tax is measured at the amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date. | Same as old GAAP.
|
No differences. |
| Tax reconciliation should reconcile the expected tax at the average tax rate for the year to the total current tax in the profit and loss.
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Tax reconciliation should reconcile the expected tax at the average tax rate for the year to the total tax (both deferred and current tax) in the profit and loss. | This is a key difference. The effect is that under FRS 102, timing differences (e.g. capital allowances in excess of depreciation, losses utilised or carried forward etc.) where deferred tax has been recognised on these in the past should not be shown in the tax reconciliation note instead of the net of these are shown in the origination and reversal of deferred tax line (Example 107 – Extract From Notes To The Financial Statements). |
| No specific disclosure required on the tax expense relating to discontinued operations.
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Disclosure of tax expense relating to discontinued operation required.
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This is a disclosure requirement which must be included where discontinued operations exist. See extract of the layout required to disclose same (Example 108 – Discontinued Operations). |
| Recognised on a timing differences basis differences between an entity’s taxable profits and its results as stated in the financial statements. Deferred tax not required to be recognised on revaluations unless the entity has:
· entered into a binding agreement to sell the revalued assets.
|
Recognised on a timing differences plus basis. Also recognised on asset revaluations and on assets and liabilities in a business combination with the exception of goodwill. In relation to deferred tax on business combinations, this gets netted against the goodwill amount. Deferred tax to be recognised on all timing differences at the reporting date except for the following:
· unrealised tax losses and other deferred tax assets where it is not probable that they can be utilised from future taxable profits; · tax allowances on fixed assets, when all conditions for retaining the allowances have been met; and · undistributed profits in a subsidiary, associate, branch or joint venture where they are controlled by the entity. |
This difference is significant. On transition to FRS 102, significantly more deferred tax will be required to be recognised especially where assets have been revalued in the past or a revaluation option is chosen.
The differences have been discussed further below individually. |
| Deferred tax assets are recognised to the extent that they are recoverable – Is it more likely than not that there will be taxable profits from which future reversal of timing differences can be deducted.
|
Unrelieved tax losses and other deferred tax assets shall be recognised only to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits (the very existence of unrelieved tax losses is strong evidence that there may not be other future taxable profits against which the losses will be relieved).
|
The wording is similar therefore no adjustments likely on transition. Section 29 is more explicit stating that where losses forward exist it is strong evidence that there may not be future profits to utilise the losses. Therefore, under Section 29, an entity should have supporting projections and reasons why they have recognised a deferred tax asset where there are significant losses carried forward. |
| Can be discounted.
|
Cannot be discounted. | Transition adjustments required where deferred tax was previously discounted under old GAAP. The vast majority of entities did not discount deferred tax under old GAAP however where this was discounted the following journals will be required to be posted at the transition date:
Cr Deferred tax liability Dr Profit and loss reserves Being journal to restate a deferred tax liability to the deferred tax amount excluding discounting: OR Dr Deferred tax asset Cr Profit and loss reserves Being journal to restate a deferred tax asset to the deferred tax amount excluding discounting. In the following year, the journals (assuming the above journals are posted to reserves etc. in this year) required are: Cr Interest expense Dr Deferred tax liability Being journal to reflect reversal of the unwinding of the discounting on the deferred tax liability posted under old GAAP: OR Dr Interest expense Cr Deferred tax asset Being journal to reflect reversal of the unwinding of the discounting on the deferred tax asset posted under old GAAP: AND Cr Deferred tax liability Dr Deferred tax in profit and loss Being journal to restate a deferred tax liability to the deferred tax amount excluding discounting: OR Dr Deferred tax asset Cr Deferred tax in profit and loss Being journal to restate a deferred tax asset to the deferred tax amount excluding discounting: AND Dr Deferred tax liability Cr Deferred tax in profit and loss Being journal to reverse the journal posted on transition above (in relation to the deferred tax liability): OR Cr Deferred tax asset Dr Deferred tax in profit and loss Being journal to reverse the journal posted on transition above (in relation to the deferred tax asset). An adjustment will also be required to the 2015 TB where already prepared under old GAAP. These adjustments will be the above mentioned journals which will be posted through profit and loss reserves etc. plus a journal similar to the comparative years’ journals above. |
| Deferred tax is measured using tax rates that have been enacted or substantively enacted at the balance sheet date and that are expected to apply in the periods in which the timing differences are expected to reverse. | Deferred tax is measured using tax rates that have been enacted or substantively enacted at the balance sheet date and that are expected to apply in the periods in which the timing differences are expected to reverse. | No differences. |
| No deferred tax required to be recognised on revaluations unless there is a binding agreement to sell.
|
Deferred tax required to be recognised on all revaluations. Deferred tax on a revalued non-depreciable asset (for instance, land) is measured using the tax rates and allowances that apply on sale of the asset. Deferred tax on depreciable assets is measured at the tax rates in which the asset is expected to be (utilised which is usually the trading rate – however the key driver is the rate in which the asset is likely to be realised). This includes any roll over gains. The deferred tax on the revaluation should follow the treatment for accounting for the revaluation i.e. through the revaluation reserve and OCI. Deferred tax to be measured on the difference between the carrying amount and the tax cost inclusive of indexation (unless indexation converts a gain to a loss in which case no gain/loss arises).Where the asset is depreciable the deferred tax is reversed as the depreciation is charged to the profit and loss. The deferred tax reversal is posted to the profit and loss account and then may be transferred from profit and loss reserves to the revaluation reserve.
|
This is a significant difference with will require an adjustment on transition in each of the following cases:
· where a previous valuation is treated as deemed cost. See attached example showing the deferred tax journals in this instance on property, plant and equipment (Example 109 – Previous GAAP Revaluation as Deemed Cost). Also see attached an example of the deferred tax journals required where a previous valuation of intangible assets is used as deemed cost. (Example 110 – Intangible Asset With An Indefinite Useful Life Under Old GAAP): · where fair value at the date of transition is treated as deemed cost (Example 111 – Fair Value As Deemed Cost); · where the entity adopts a policy of revaluation on transition to FRS 102 and continues to apply this, then the same type of deferred tax journals will be required as(Example 109 – Previous GAAP Revaluation As Deemed Cost). See also an example for an associate who has decided to carry the investment in the individual entity financial statements of the parent at fair value through the P&L on transition (Example 112 – Adoption Of Fair Value Through Profit And Loss On Transition). The same type of journal is required for a joint venture where held at fair value through the P&L. See also an example for an associate who has decided to carrying the investment in the individual entity financial statements of the parent at fair value through OCI on transition (Example 113 – Adoption Of Fair Value Through Other Comprehensive Income On Transition). The same type of journal is required for a joint venture where held at fair value through the P&L. |
| No deferred tax required to be recognised unless there was a binding agreement to sell.
|
Deferred tax on an investment property held at fair value is measured using the tax rates and allowances that apply on sale of the asset, unless the property is held in a business model where substantially all of the property’s economic benefits will be consumed over time. This deferred tax should be posted to the tax line in the profit and loss.
Where a property no longer/or never meets the definition of an investment property because it cannot be either reliably measured or cannot be measured without undue cost or effort it should be reclassified to PPE and depreciated from that date. In this case the deferred tax rate that it was originally measured at (i.e. rate on a sale) should continue unless it is likely to have no residual value in which case the rate to use should be the rate expected on its realisation. The deferred tax is reversed to the profit and loss as the depreciation is charged on the asset. |
This is a significant difference and a transition adjustment will be required to reflect the deferred tax on any fair value adjustments. Note where a downward valuation arises, consideration will have to be had as to whether a deferred tax asset should be recognised by assessing whether there will be future capital profits to utilise the capital loss on the devaluation.
See attached an example illustrating the transition adjustments required (Example 114 – Deferred Tax On Investment Property Fair Value Adjustments). A similar journal would be required if a property rented to a group company was classified as investment property on transition to FRS 102 (Example 114A – Property Leased To Other Group Companies Classified As Investment Property). |
| No deferred tax required to be recognised on the fair value adjustments recognised in a business combination. | Section 29 states that deferred tax is recognised on differences between acquisition fair value and tax base (including revaluations and intangibles ‘created’ as a result of the combination but excluding goodwill) even if these are permanent differences. Deferred tax is set against goodwill.
|
This is a significant difference and will result in a transition adjustment being posted on transition where an entity has had business combinations in the past and the fair values differed from the book values and intangibles were recognised as part of the combination. This deferred tax is required to be recognised even where the exemption contained in Section 35.10 not to restate prior year business combinations is claimed. See attached an example of the journals required on transition (Example 115 – Adjustments To Deferred Tax For Business Combinations Where They Occurred Before The Date Of Transition And Exemption Section 35.10(A) Claimed).
Where the transition exemption is not claimed, an adjustment will be required for all deferred tax whether that be since transition or prior to transition. See example attached detailing the adjustments where a business combination was entered into prior to the date of transition (Example 116 – Adjustments To Business Combinations Where It Occurs Before Date Of Transition But Exemption Section 35.10(A) Not Claimed). See example attached detailing the adjustments where a business combination was entered into pre the date of transition and the exemption not claimed (Example 117 – Adjustments To Business Combinations Where It Occurs After The Date Of Transition). |
| Fair valuing of financial instruments was not carried out under old GAAP even for FRS 26 adopters.
|
Given the different treatment of financial assets and liabilities under Section 11 and Section 12 of FRS 102, there may be differences between the tax value and the carrying value or expenses/income may have fallen out for tax purposes on transition which will be taxed as part of the tax transition rules which may require deferred tax to be recognised e.g. deferred tax on fair value adjustments on transition for forward contracts (note following transition deferred tax may not be required as the movements posted into the P&L will be taxable/tax deductible in the same period as they hit the profit and loss i.e. no timing differences).
Deferred tax is required to be recognised on equity investments carried at fair value (as required by section 11).
|
This is a significant one off difference. As a result of transition adjustments deferred tax will need to be recognised.
See attached an example of deferred tax required to be recognised on forward contracts which were required to be recognised at the date of transition assuming hedge accounting is not applied. This deferred tax is specific to transition. (Example 118 – Forward Contracts). See attached an example of deferred tax required to be recognised on an interest rate swap which was required to be recognised at the date of transition assuming hedge accounting is not applied. This deferred tax is specific to transition. (Example 119 – Interest Rate Swap – Non Hedge Accounting). See attached an example of deferred tax required to be recognised on an interest rate swap and on a forward foreign contract where hedge accounting is applied, which was required to be recognised at the date of transition. This deferred tax is specific to transition. (Example 119A – Deferred Tax On Adjustments To Recognise Forward Contract And Interest Rate Swaps Where Hedge Accounting Is Applied). See attached an example of deferred tax required to be recognised on a fair value hedge which was required to be recognised at the date of transition. This deferred tax is specific to transition. (Example 119B – Deferred Tax On Adjustments To Recognise Forward Contract And Interest Rate Swaps Where Hedge Accounting Is Applied). See attached an example of deferred tax required to be recognised on the uplift of value on equity instruments not recognised under old GAAP (Example 120 – Non-Puttable Ordinary Shares At Market Value). See further one off deferred tax journals in the line below. |
| Not applicable as specific to transition. | Transition adjustments required for deferred tax on expenses/income which has fallen out for tax purposes and will be taxable/tax deductible in the future under the tax transition rules (e.g. deferred tax on holiday accruals not previously recognised, reduction in lease incentives, foreign exchange adjustments due to non-monetary assets now becoming monetary assets, deferred tax on transition journals to element a financing element from costs, sales inventory as required under Section 11 and Section 23 etc.). | These are one off adjustments that are required on transition.
See attached an example of deferred tax required to be recognised on a holiday accrual not recognised under old GAAP (Example 121 – Extract From The Accounting Policy Notes). See attached an example of deferred tax required to be recognised on a transition adjustment required to eliminate the financing element from a purchase and a sale not recognised under old GAAP (Example 122 – Sale With Unusual Credit Terms). See attached an example of the deferred tax journals required where fair value of customer loyalty products was recognised on transition as they were not previously deferred under old GAAP (Example 123 – Customer Loyalty). See attached an example of the deferred tax journal required where a revenue grant meets the conditions for recognition under FRS 102 but did not meet the recognition criteria under old GAAP. (Example 124 – Reasonable That The Conditions For The Grant Will Be Complied With). See attached an example of the deferred tax journal required where an entity adopts a performance model for recognising grants and a revenue grant was received at or since transition. (Example 125 – Adoption Of The Performance Model – Revenue Grant). See attached an example of deferred tax required to be recognised on the reversal of lease incentives after the date of transition assuming the exemption not to restate incentives received prior to the date of transition (Example 126 – Lease Incentives Since Date Of Transition). See attached an example of the deferred tax journal required where a provision for loss was included in a closure provision was reversed on transition and the deferred tax impact as a result (Example 127 – Inclusion Of Future Operating Losses In A Provision For Termination Of Operations Under Old GAAP). See attached an example of deferred tax required to be recognised on the adoption of a cash flow hedge reserve not recognised under old GAAP (Example 128 – Reversal Of Impairment On An Individual Asset and Example 129 – Cash Flow Hedge Example). See attached an example of deferred tax required to be recognised after the date of transition for the reclassification of spare parts to PPE (Example 130 – Reclassification Of Spare Parts From Inventory To PPE). See attached an example of the deferred tax journal required where previously under old GAAP a long term foreign currency loan was treated as a non-monetary asset -not allowed under FRS 102 and therefore corrected (Example 131 – Long Term Loan Adjustment). See attached an example of deferred tax reclassification to separate deferred tax from the carrying amount of a defined pension scheme separately from the carrying amount of the defined benefit scheme (Example 132 – Reclassification Of Deferred Tax From The Carrying Amount Of The Defined Benefit Balance). See attached an example of deferred tax required to be recognised on a transition adjustment to recognise a group defined benefit scheme on the balance sheet not recognised under old GAAP (Example 133 – Group Defined Benefit Pension Scheme Treated As Defined Contribution Scheme Under Old GAAP Now Required To Be Brought On Balance Sheet). |
| Current tax on share issue costs recognised in the profit and loss. | Current tax on share issue costs recognised in equity and not in the profit and loss.
|
It is unlikely that this will create a material difference. Entities should review and assess if tax on such costs were significant since the date of transition. If material a journal will be required to transfer the tax deduction from tax in the profit and loss to equity in the balance sheet. |
| Specific disclosure required, disclosing evidence to support the recognition of the deferred tax assets. | No specific disclosure requirement to disclose evidence to support the recognition of the deferred tax asset. | This is a disclosure difference as a result no transition adjustments required. |
| No disclosure required for the net reversal of timing differences in the following period.
|
Disclosure required of the expected net reversal of timing differences in the following reporting period. | This is a disclosure difference as a result no transition adjustments required. See example attached showing the principal disclosure requirements under Section 29 (Example 134 – Extract From Notes To The Financial Statements). |
| Deferred tax to be recognised on unremitted earnings where there is a binding agreement to distribute and the earnings have been recognised in the financial statements but will not be taxed until later unless the entity can control the reversal of the timing. | Section 29 requires deferred tax to be recognised on the unremitted earnings of an associate joint venture. A timing difference arises as in the consolidated financial statements under the equity method, the income or loss for the parents’ share is recognised in the profit and loss account which then increases or decreases the value on the balance sheet. This income/loss is not taxable/tax deductible in the tax computation, but it may be taxable in the future when dividend is received from the associate, hence this creates the timing difference.
As with old GAAP the entity cannot control the reversal of the timing. |
Whether deferred tax should be recognised will depend on whether any dividend received from the associate/joint venture will be taxable for the parent company. Where the associate/joint venture is an Irish company no tax will be payable and therefore no deferred tax needs to be recognised assuming the expected settlement will be from dividends received and not from a sale.
Where it will be taxable then deferred tax will need to be recognised at the passive tax rate or where the investment is held for future sale the sales tax rate should be utilised. If this is the case a transition adjustment will need to be made on transition to FRS 102. See attached an example of the journals required to recognise this deferred tax (Example 135 – Deferred Tax On Unremitted Earnings). |
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