• The intangible assets are development costs that are allowed for tax purposes when the cost is incurred. The costs were incurred in 2008.
• Included in the trade and other payables is an accrual for compensation to be paid to employees. It is allowed for taxation when payment is made and totals $200M.

Balance Sheet at January 1, 2010
	$M
Property, plant & equipment	7,000
Goodwill	3,000
Intangible assets	2,000
Financial assets	6,000
Total non-current assets	18,000
Trade and other receivables	7,000
Other receivables	1,600
Cash and cash equivalents	700
Total current assets	9,300
Total assets	27,300
Issued capital	6,000
Revaluation reserve	1,500
Retained earnings	6,130
Total equity	13,630
Interest-bearing loans	8,000
Trade and other payables	4,000
Employee benefits	1,000
Current tax liability	70
Deferred tax liability	600
Total liabilities	13,670
Total equity and liabilities	27,300

1. Tax bases of the assets and liabilities are the same as their carrying amounts except for

	Tax base
	$M
Property, plant & equipment	1,400
Trade receivables	7,500
Interest-bearing loans	8,500
Financial assets	7,000

• 
  

1. During 2009, a building was revalued. At January 1, 2010, there was $1,500M remaining in the revaluation reserve in respect of this building.
2. The following adjustments to the financial statements will have to be made to comply with IFRS 1, First-Time Adoption of IFRS, on January 1, 2010:

• Intangible assets of $400M do not qualify for recognition under IFRS 1.
• The financial assets are all classified as at fair value through profit and loss and their fair value is $6,500M, which is to be included in the IFRS accounts.
• A pension liability of $50M is to be recognized under IFRS 1 that was not recognized under local generally accepted accounting principles (GAAP). The tax base of the liability is zero.

3. The entity is likely to be very profitable in the future.

Required:

Calculate the deferred tax provision at January 1, 2010, showing the amount of the adjustment required to the deferred tax provision and any amounts to be charged to the revaluation reserve. Assume a tax rate of 30%.

Answer rating: 100% (QA)

M Deferred tax provision Property plant equipment 1400 Trade ... View the full answer