Deferred tax and Investment property

[SrdjanMilanovic]

Hi all,

company had investment properties (buildings), which were recognized in their book at the fair (trade) value according to assessment, which was prepared on a yearly basis, according to IAS 40. Since buildings were transferred from PPE, when they were recognized at cost value, according to the assessment revaluation reserves were recorded and calculated related deferred tax liabilities.
Company sold their investment properties and recorded sale in their books, together with cancelation of revaluation reserves (DR revaluation reserves / CR retained earnings). How should deferred tax liabilities be treated? Is it cancelation through retained earnings, or through deferred tax income/expense? And please give explanation.

Thank you.

[jacktu0303]

The temporary difference between tax base and accounting base realized when you sell the IP. The journal entries should be as follows:

Dr Deferred tax liability/Cr Deferred tax income
Dr Current tax expense/Cr Income tax obligation

[Marek Muc]

@ jacktu - when the building was transferred from PP&E to investment property, its first fair valuation was handled as a revaluation in line with IAS 16, and this was done through OCI rather than P/L. Since this surplus isn't later recycled to P/L when the property is derecognised (sold), why do you recommend routing the deferred tax impact through P/L? My approach to deferred tax would be:

Initial recognition:
CR Deferred tax liability
DR Revaluation reserve (OCI not recycled to P/L)

Derecognition:
DR Deferred tax liability
CR Retained earnings

Relevant KB sections:
https://ifrscommunity.com/knowledge-bas ... alue-model
https://ifrscommunity.com/knowledge-bas ... le-assets/
https://ifrscommunity.com/knowledge-bas ... esentation

As for the current income tax charge relating to the disposal, this applies:
https://ifrscommunity.com/knowledge-bas ... allocation