Skip to content

ACCA Strategic Professional · Strategic Business Reporting (International) · Income taxes

Delta Co has an uncertain tax position and recognised a current tax liability of $60,000 under IFRIC 23 at 31 December Year 1. In Year 2 the tax authority issues a ruling on a similar matter at another entity, which changes Delta's assessment so that the treatment is now probable of acceptance. The tax paid is unaffected until the examination ends. How should Delta account for the change?

Delta should treat the change as a change in estimate and reflect the release of the $60,000 in Year 2 income tax expense. IFRIC 23 requires reassessment when facts change, with IAS 8 applied. It is not a prior period error or policy change, since the Year 1 judgement was reasonable.

  1. ARestate the Year 1 comparatives as a prior period error under IAS 8
  2. BReverse the liability through retained earnings directly as it relates to a past year
  3. CTreat it as a change in accounting policy and apply it retrospectively
  4. DTreat it as a change in estimate and reflect the effect in Year 2 income tax expense, as new facts and circumstancesCorrect

Explanation

IFRIC 23 requires an entity to reassess judgements and estimates when facts and circumstances change or new information arises, and to apply IAS 8 for the change. Such a change is a change in estimate, recognised in profit or loss as tax expense in the period of change. It is not an error because the Year 1 judgement was reasonable on information then available, and it is not a policy change.

Did you get it right without looking?

One question tells you little. A timed set on Income taxes shows your real accuracy, how long you take and where you lose marks.

Practise Income taxesFree diagnostic mock

More Income taxes questions