Deferred tax on revaluation of PPE

[Giannos]

Hello,

I have a question about the deferred tax on revaluation of immovable property, which is under the category of PPE.

A company bought a building for EUR 1,000,000 and at the year end this building was revalued to EUR 1,500,000.

The tax rate is 10%, which means that the deferred tax on revaluation is EUR 50,000.

An amount of EUR 500,000 will be credited in the revaluation reserve, an amount of EUR 50,000 (deferred tax) will be debited in the revaluation reserve and a corresponding deferred tax liability of EUR 50,000 will be created.

The company decided to use EUR 400,000 from the revaluation reserve to increase its share capital, which means that its revaluation reserve will be reduced from EUR 500,000 to EUR 100,000 (if we ignore the deferred tax amount of EUR 50,000 which was debited in revaluation reserve).

My question is whether the deferred tax liability will remained as EUR 50,000 or whether it should be reduced to EUR 10,000 in order to be in line with the amount of the revaluation reserve.

Thank you.

[Ketan Marwah]

Hi,

I am not sure if the suggested approach for issuing capital is allowed but what is definite is that IAS 12: Income Taxes follows balance sheet method therefore if the tax base and carrying amounts are unchanged then the related DTL would also be unchanged.

[Marek Muc]

Deferred tax arose on building,not on the corresponding impact on OCI/equity. Thus, reclassifications within equity won't impact recognised deferred tax, unless this operation changed the building's tax base, did it?

[Giannos]

Thank you a lot!