Proposed amendments to IAS 12 Deferred Tax : Recovery of Underlying Assets

On 10 September 2010, the IASB published for public comment an exposure draft (ED) of Deferred Tax : Recovery of Underlying Assets.

The proposal would amend one aspect of IAS 12 Income Taxes. Under IAS 12, the measurement of deferred tax liabilities and deferred tax assets depends on whether an entity expects to recover an asset by using the asset or by selling the asset. In some cases, it is difficult and subjective to assess whether recovery will be through use or through sale.

To provide a practical approach in such cases, the proposed amendments state that, in specified circumstances, the measurement of deferred tax liabilities and deferred tax assets should reflect a rebuttable presumption that the carrying amount of the underlying asset will be recovered entirely by sale.

The specified circumstances are that the deferred tax liability or deferred tax asset arises from :

1. investment property, when an entity applies the fair value model in IAS 40 Investment Property; or
2. property, plant and equipment or intangible assets, when an entity applies the revaluation model in IAS 16 Property, Plant and Equipment or IAS 38 Intangible Assets.

The presumption is rebutted only when an entity has clear evidence that it will consume the asset’s economic benefits throughout its economic life.

Overall, the proposed amendments are intended to provide a practical approach for measuring deferred tax liabilities and deferred tax assets when it would be difficult and subjective to determine the expected manner of recovery.

The ED is open for comment until 9 November 2010.

The Press Release and the Exposure Draft are available from the IASB website : IASB proposes to amend one aspect of accounting for deferred tax