IAS 12

[kashandagha]

In our operational jurisdiction, vehicle costs are limited to 2.5 million. For instance, if I purchase a vehicle worth 5 million at the beginning of the year and use a straight-line depreciation method of 10%, the tax authority will cap the cost at 2.5 million. Subsequently, I can calculate depreciation at 10% . My question is, what carrying amount should I use when calculating deferred tax?

[exIFRS]

IAS12 Para 7: The tax base of an asset is the amount that will be deductible for tax purposes against any taxable economic benefits that will flow to an entity when it recovers the carrying amount of the asset. If those economic benefits will not be taxable, the tax base of the asset is equal to its carrying amount.

This means on Day 1 the Tax Base = CA (5Million) - taxable economic benefits* (5million) + future deductible amount (2.5million) = 2.5 million.
*taxable economic benefits are basically the amount of the carrying value that is expected to generate taxable income.

You have a taxable temporary difference (in the future you will pay more tax than you would if you could claim the full amount) of 2.5 million (5-2.5) which will create a DTL once you apply the tax rate. (eg if 20% tax DTL = 500,000)

Dr Tax Exp 500,000
Cr DTL 500,000

As you depreciate this this calculation will change. Based on what you have said 10% for both tax and accounting purposes

i.e after one year Tax base = 4.5million - 4.5 million + 2.25million = 2.25million.

TTD = 2.25 and DTL = 450,000 (so we need to reduce the previous DTL by 50,000)

Dr DTL 50,000
Cr Tax Exp 50,000

[CPA Kevin Matt]

Carrying amount would be 5 million but for deferred tax purposes the difference between Tax base and Carrying Amount of 2.5 million would be ignored as per Initial recognition exemption unless criteria under IAS 12.15/24 are not fulfilled. Refer the following url:
https://ifrscommunity.com/knowledge-bas ... -exemption

[exIFRS]

Good call. I forgot about the exemption for non business combinations. Ignore me (we can all have a bad day )

[Marek Muc]

Well, it looks like exIFRS is just as human as the rest of us!
And thank you Kevin Matt!