01-23-2010, 10:15 PM
Dear Kamran,
currently there are two approaches followed in respect of deferred taxation relating to finance lease arrangement,
Approach 1
deferred tax asset/liabilty <b>is booked</b> on finance lease and i 100% agree with treatment suggested by you for recording of deferred tax asset/liability in case of finance lease arrangement.
Approach 2
deferred tax asset/liability <b>is not booked</b> and the arguments in support of approach 2 is that transaction of such type falls under the exemption provided by para 15 of IAS 12. as far as the applicability of above mention para on finance lease arrangement i can produce the the extracts from discussion of IFRIC,
<b>Extract from the IFRIC Update April 2005</b>
"The IFRIC noted that initial recognition exemption applies to each separate recognised element in the balance sheet, and no deferred tax asset or liability should be recognised on the temporary difference existing on the initial recognition of assets and liabilities arising from finance leases or subsequently. The IFRIC took the view that IAS 12.16 is clear that all deferred tax assets and liabilities must be recognised unless they fall within an exemption specified by paragraph 15 or 24. The inception of a finance lease is clearly the initial recognition of an asset that does not arise from a business combination and does not affect profit or loss at the time of recognition. Accordingly the exemption applies and there can be no recognition of a deferred tax asset or deferred tax liability.).â
I hope i have explained my point of view to your satisfaction. further arguments are awaited ))
Thanks and Regards,
Shakeel Badar
currently there are two approaches followed in respect of deferred taxation relating to finance lease arrangement,
Approach 1
deferred tax asset/liabilty <b>is booked</b> on finance lease and i 100% agree with treatment suggested by you for recording of deferred tax asset/liability in case of finance lease arrangement.
Approach 2
deferred tax asset/liability <b>is not booked</b> and the arguments in support of approach 2 is that transaction of such type falls under the exemption provided by para 15 of IAS 12. as far as the applicability of above mention para on finance lease arrangement i can produce the the extracts from discussion of IFRIC,
<b>Extract from the IFRIC Update April 2005</b>
"The IFRIC noted that initial recognition exemption applies to each separate recognised element in the balance sheet, and no deferred tax asset or liability should be recognised on the temporary difference existing on the initial recognition of assets and liabilities arising from finance leases or subsequently. The IFRIC took the view that IAS 12.16 is clear that all deferred tax assets and liabilities must be recognised unless they fall within an exemption specified by paragraph 15 or 24. The inception of a finance lease is clearly the initial recognition of an asset that does not arise from a business combination and does not affect profit or loss at the time of recognition. Accordingly the exemption applies and there can be no recognition of a deferred tax asset or deferred tax liability.).â
I hope i have explained my point of view to your satisfaction. further arguments are awaited ))
Thanks and Regards,
Shakeel Badar
