IAS12: tax base for revalued asset recovered through sale

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ken0726
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Joined: 17 Nov 2022, 08:19

IAS12: tax base for revalued asset recovered through sale

Post by ken0726 »

I got confused about a question about tax base for a revalued asset which would be recovered by sale when learning deferred tax part. the question asked for calculating after-revaluation tax bases under capital gain tax applied scenario and unapplied scenario.
Q:
A depreciable asset, with an initial cost of $100, is revalued to a new carrying amount of $150. immediately prior to the revaluation, the carrying amount of the asset was $80 and the future deductible amount on recovery of the asset was the tax written-down amount of $70 (cost of $100 less $30 cumulative depreciation previously allowed for tax purposes). the capital gains tax cost base (future taxable amount if recovery of the asset is by sale) is $120.
Answer:
if CGT is applied:
tax base=150 (carrying amount) + 70 (future deductible amount) - 100 (future taxable amount) = 120
if CGT is not applied:
tax base=150 (carrying amount) + 90 (future deductible amount) - 150 (future taxable amount) = 90

Actually I feel confused about how the future deductible amount and future taxable amount are calculated. Here's my initial thought:
before revaluation, there's future taxable amount of 10, and the revaluation process produces another future taxable amount of 70, so tax base should be 150+0-80=70.
Could anybody tell me if an asset is recovered by sale, how the deductible amount and taxable amount calculated? Seems my calculation is based on recovery by use. Thanks!
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Marek Muc
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Re: IAS12: tax base for revalued asset recovered through sale

Post by Marek Muc »

Please see whether:

- this section https://ifrscommunity.com/knowledge-bas ... nsequences; and

- paragraphs IAS 12.51A-51E

answer your question.
ken0726
Posts: 2
Joined: 17 Nov 2022, 08:19

Re: IAS12: tax base for revalued asset recovered through sale

Post by ken0726 »

Thanks. I read the example B in IAS 12 51A(b), but I couldn't understand the sentence that I highlighted in bold below:
An item or property, plant and equipment with a cost of 100 and a carrying amount of 80 is revalued to 150. No equivalent adjustment is made for tax purposes. Cumulative depreciation for tax purposes is 30 and the tax rate is 30%. If the item is sold for more than cost, the cumulative tax depreciation of 30 will be included in taxable income but sales proceeds in excess of cost will not be taxable.
I couldn't understand why the sale proceeds over cost can' be wholly taxable.. Assuming the sale price is $120, shouldn't the whole amount of $50 (sale price less taxable base of $70) be taxable, why only the depreciation part of $30 taxable? If convenient, could you clarify it to me ? Thanks!
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Marek Muc
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Re: IAS12: tax base for revalued asset recovered through sale

Post by Marek Muc »

this is just an assumption for the purpose of this example, it all obviously depends on actual tax law which, as you can imagine, can differ between countries

PS. don't quote the previous post in full please:
https://ifrscommunity.com/ifrs-forum-qu ... nk-quoting
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