The IASB has issued 'Recognition of Deferred Tax Assets for Unrealised Losses' which makes narrow-scope amendments to IAS 12 'Income Taxes' (the Amendments).
The focus of the Amendments is to clarify how to account for deferred tax assets related to debt instruments measured at fair value, particularly where changes in the market interest rate decrease the fair value of a debt instrument below cost.
The Amendments add guidance to the Standard in the following areas where diversity in practice previously existed:
- existence of a deductible temporary difference;
- recovering an asset for more than its carrying amount;
- probable future taxable profit against which deductible temporary differences are assessed for utilisation; and
- combined versus separate assessment.
The Amendments are effective for annual periods beginning on or after 1 January 2017. Earlier application is permitted.
The Amendments are to be applied retrospectively. However they allow the change in opening equity of the earliest comparative period presented, that arises from applying the Amendments for the first time, to be recognised in opening retained earnings without the need to allocate the change between opening retained earnings and other components of equity.