Quick one on deferred tax and revaluation surplus

2 answers

• Hi all, Quick one on this because it catches loads of people out in FR and the QB can be properly misleading on it. Technically the debit goes to OCI. IAS 12.61A says that when the deferred tax relates to items recognised in OCI (like a revaluation gain under IAS 16), the deferred tax charge is also recognised in OCI. So your double entry is: Dr OCI, Cr Deferred Tax Liability. The Revaluation Surplus in equity then gets credited with the net of tax amount (the gross gain less the deferred tax you’ve charged to OCI). Where the QB trips people up is when it shows the net presentation as Dr Revaluation Surplus and Cr DTL, which is just a shorthand and technically skips the OCI step that the standard actually requires. If the question asks for the journal, always go Dr OCI, Cr DTL first, then transfer the net gain from OCI to the Revaluation Surplus. For exam purposes, the examiner loves testing that the tax effect goes through OCI, not straight against equity. I got caught on this in FR and our tutor called it ‘the one everyone forgets’ so you’re definitely not alone! Cheers

  Aisha M. · 2mo ago

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• Hi all, adding a slightly different angle from the Advanced Case Study side. In the CS you're obviously not writing out the journal but you'll often need to unpick what the revaluation and the deferred tax are doing to the reserves split, especially if the AI gives you a property revaluation just before year end and the company has tight debt covenants or is trying to maintain a certain level of distributable reserves. The revaluation surplus is non-distributable and the deferred tax effectively sits there reducing the net surplus in equity, so if management is eyeing up a big dividend, you can't just point at the gross revaluation gain and say the balance sheet is rosy. Also worth keeping half an eye on whether the tax base might not simply be old cost if there's been a previous claim for rollover relief or indexation that survived IFRS transition (unusual but it has popped up in a past paper or two). Cheers.

  Grace W. · 2mo ago

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