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

Zeta plc has a deferred tax asset and a deferred tax liability. Both relate to the same taxation authority, and Zeta has a legally enforceable right to set off current tax assets against current tax liabilities. The entity intends to realise the asset and settle the liability simultaneously. Under IAS 12, how should the deferred tax balances be presented in the statement of financial position?

Zeta should present the deferred tax asset and liability net as one amount. IAS 12 requires offsetting when there is a legally enforceable right to set off current tax balances and both balances relate to the same tax authority, which is the situation described.

  1. AOffset and presented as a single net amountCorrect
  2. BPresented gross as separate asset and liability, because deferred tax must never be offset
  3. COffset only if the temporary differences relate to the same asset
  4. DPresented gross, with the net amount disclosed in the notes only

Explanation

IAS 12 requires offset of deferred tax assets and liabilities when the entity has a legally enforceable right to set off current tax balances and the balances relate to income taxes levied by the same authority on the same taxable entity (or on entities intending to settle net or simultaneously). Both conditions are met here, so a net amount is presented. The 'never offset' option ignores this rule.

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