Deferred tax on revaluation of PPE in FR, how many marks is this usually

2 answers

• I've done FR and remember this exact headache, the QB makes it seem like a monster but the examiner's actual marking is a lot more surgical. In the vast majority of past papers the bulk of the marks (often 2 out of 3) is purely for the initial revaluation surplus x rate straight to OCI, because it tests the core IAS 12 principle that the tax follows the gain. The subsequent depreciation timing difference (the excess depreciation on the reval'd amount vs. original cost) is usually a small extra mark, and you only bother with it if the requirement explicitly asks for the closing deferred tax balance or there's a 'year-end movement' sentence, otherwise you leave it. My tip is keep a quick reconciliation in your head: initial DTL on surplus, then each year's excess depreciation x rate as a Dr deferred tax liability and Cr retained earnings (or transfer from revaluation surplus), which nets the liability down. That way you can pick up the extra mark in 30 seconds flat without the full workbook treatment.

  Grace W. · 1mo ago

  0 votes

• Quick one to add a small technical point on the reversal bit. When the excess depreciation unwinds the temporary difference, the credit for the movement in the DTL goes to the income tax charge in P&L (so it reduces your tax expense), not straight to retained earnings. The transfer from revaluation surplus to retained earnings for the realised portion is a separate reserve movement under IAS 16 and you might get a half mark for journaling that if the examiner asks for reserves movements. I only bother with the closing DTL adjustment if the question says 'prepare the deferred tax note' or 'calculate the closing provision', otherwise I just do the initial OCI hit and move on. Cheers.

  Priya K. · 1mo ago

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