AB has taxable temporary differences arising from the revaluation of non current assets. What is the journal entry to record the movement in the…

A revaluation of non-current assets creates a taxable temporary difference because the revalued carrying amount exceeds the tax base. IAS 12.61 requires that “current and deferred tax relating to items recognised outside profit or loss shall be recognised outside profit or loss”; consequently, the tax effect of a revaluation is recorded in other comprehensive income/equity, not in the income statement. Therefore the movement is:

Dr Revaluation surplus (reducing the OCI gain)

Cr Provision for deferred tax (deferred tax liability).

• Dr Income-tax expense (P&L) / Cr Deferred tax liability – violates IAS 12.61; revaluation tax must bypass P&L.

• Dr Deferred tax asset / Cr Revaluation surplus – revaluation gives a taxable, not deductible, temporary difference; liability not asset.

• Dr Revaluation surplus / Cr Deferred tax asset – wrong side and wrong type of deferred tax account.

1. IAS 12 Income Taxes

para 59–61 (IFRS Foundation

2023 Red Book).

2. Elliott & Elliott

“Financial Accounting and Reporting”

19th ed.

Pearson

Ch.19 ‘Income Taxes’

pp. 559-560.

3. Alexander & Nobes

“Financial Accounting”

7th ed.

Routledge

Section 16.4.2

pp. 347-348 (tax on revaluations).