Treatment of Deferred Tax Under Ind As 12 for Intended Sale of PPE | Part-2

Ind AS 12, Income taxes, prescribes the accounting treatment for income taxes. The principal issue in accounting for income taxes is how to account for the current and future tax consequences of:

(a) the future recovery (settlement) of the carrying amount of assets (liabilities) that are recognised in an entity’s balance sheet; and

(b) transactions and other events of the current period that are recognised in an entity’s financial statements.

This story covers how a company measures its accounting base, tax base, and the differences between them to determine deferred tax in different scenarios. Normally, a company expects to recover the cost of an asset like Property, Plant, and Equipment (PPE) over time through its use. However, it is interesting to know the treatment for tax purposes if the company changes its plan from using the asset to selling it immediately and getting the money back immediately.

To explain this, this story deals with various cases explaining the treatment of deferred tax under Ind AS 12 where the management of the company intends to sale the revalued land either individually or as a slump sale or tax treatment on classifying the revalued land as an investment property.

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