At 1 April 2019 there was a deferred tax liability of $6.6 million in the statement of financial position and no adjustments have been made to this figure at 31 March 2020. This deferred tax liability was solely in relation to the differences between the carrying amount ($90 million) and the tax based ($57 million) of plant and equipment. At 31 March 2020 these figures were $96 million and $54 million respectively for the carrying amount and tax base of plant and equipment. The applicable income tax is 20%. GHL accounts for plant and equipment using cost model under HKAS 16 ‘Property, Plant and Equipment’.

The first tax loss carried forward in respect of the year ended 31 March 2020 is $24 million. GHL has reliable budgets for a total taxable profit of $12 million for the next two financial years. Tax losses can be carried forward indefinitely under the tax law. Fanny used the full amount of tax loss to determine the deferred tax amount and has been reflected in the draft financial statements.

Question: 

Under what conditions would deferred taxes need to be reported in the financial statements. Explain why an applicable tax rate and average effective tax rate numerical reconciliation and the major elements of tax expense or income are required to be included in the disclosure in accordance with HKAS 12 ‘Income Taxes’.

Answer rating: 100% (QA)

Conditions where deferred taxes needs to be reported in Financial Statements 1 Deferred t... View the full answer