02-14-2008, 04:39 PM
Dear Amir,
Accounting base of investment in associate is the carrying value as per balance sheet, which of course includes post acquisition profits/reserves and excludes dividends etc.
Tax base of investment is the actual cost incurred in acquiring / purchasing the investment at the outset of transaction.
Now I don't know whether or not appropriate data is available in your question and if it is available how it has to be deduced in the given circumstances. As far as companies are concerned, they always have the data of actual costs and subsequent measurement movements, therefore, they don't find it a matter of difficulty.
If you see the disclosures of investment in associate, you will note that a reconciliation is required by paragraph 38 of IAS 28 whereby separate disclosure of investor's share in profit or loss and actual carrying values is required. If such disclosure is appropriately drafted, the actual cost (original carrying value before recognizing investors share of profit or loss) could be found. However, so many company's don't give much detailed disclosure / reconciliation under this paragraph.
Even if investments are stated under IAS 39. The tax base has to remain its original cost. You may also have noted that some companies provide deferred taxation on fair value gains recognized against "unquoted" investments held for trading etc. Gains on listed securities has been exempted from tax therefore such gains are not subject to tax or deferred tax. So, in case of unlisted / unquoted investments such unrealized gains are not credited to investments for calculating tax base of investments. Rather, tax base has to remain the original cost.
Now you will have to discuss the specific issue with your question that how you approach or question requires you to approach to the cost of the investment in associate.
If you have data you can deduct all accumulated post acquisition profits/reserves from the investment and add back all the accumulated dividends over the period of holding such investment to reach the cost.
However, this methodology may require to make certain adjustments for investments sold during any period.
Simply speaking either you will have the data regarding cost of investments in your question or some other detailed reconciliation / disclosure or other information would be available and you will have to decide in specific circumstances that how cost could be arrived at.
There is no fix formula for this purpose.
Regards,
Kamran.
Accounting base of investment in associate is the carrying value as per balance sheet, which of course includes post acquisition profits/reserves and excludes dividends etc.
Tax base of investment is the actual cost incurred in acquiring / purchasing the investment at the outset of transaction.
Now I don't know whether or not appropriate data is available in your question and if it is available how it has to be deduced in the given circumstances. As far as companies are concerned, they always have the data of actual costs and subsequent measurement movements, therefore, they don't find it a matter of difficulty.
If you see the disclosures of investment in associate, you will note that a reconciliation is required by paragraph 38 of IAS 28 whereby separate disclosure of investor's share in profit or loss and actual carrying values is required. If such disclosure is appropriately drafted, the actual cost (original carrying value before recognizing investors share of profit or loss) could be found. However, so many company's don't give much detailed disclosure / reconciliation under this paragraph.
Even if investments are stated under IAS 39. The tax base has to remain its original cost. You may also have noted that some companies provide deferred taxation on fair value gains recognized against "unquoted" investments held for trading etc. Gains on listed securities has been exempted from tax therefore such gains are not subject to tax or deferred tax. So, in case of unlisted / unquoted investments such unrealized gains are not credited to investments for calculating tax base of investments. Rather, tax base has to remain the original cost.
Now you will have to discuss the specific issue with your question that how you approach or question requires you to approach to the cost of the investment in associate.
If you have data you can deduct all accumulated post acquisition profits/reserves from the investment and add back all the accumulated dividends over the period of holding such investment to reach the cost.
However, this methodology may require to make certain adjustments for investments sold during any period.
Simply speaking either you will have the data regarding cost of investments in your question or some other detailed reconciliation / disclosure or other information would be available and you will have to decide in specific circumstances that how cost could be arrived at.
There is no fix formula for this purpose.
Regards,
Kamran.
