The Handbook to IFRS Transition and to IFRS U.S. GAAP Dual Reporting

2.19.3.18 Deferred Taxes

An entity that elects the fair value as deemed cost must recognize the related deferred taxes at transition date according to the rules in IAS 12, irrespective of whether the entity intends to sell the asset.659 Paragraph 2.12.6.1 previously explains that IFRS 1 does not waive IAS 12.

An issue arises about whether at transition date deferred taxes arising from fair value as deemed cost should affect opening retained earnings or accumulated other comprehensive income.

Planning Point: IAS 12 does not give explicit guidance on this topic. This is not a fair value measurement made under the revaluation model in IAS 16, which would affect other comprehensive income. As an adjustment to deemed cost affects opening retained earnings, under the ordinary backwards tracing rules of IAS 12 the entity records deferred taxes against opening retained earnings.660 By analogy, in a restatement for hyperinflation (a different case of fair value measurement that does not affect revaluation surplus), IAS 12 recognizes deferred taxes in profit or loss, and not other comprehensive income.661

Another point concerns the account that a subsequent change in tax rates or tax laws will affect. Paragraph 2.12.6.5 previously deals with this issue.

According to IAS 12, measurement of deferred taxes must reflect the tax base and the tax rates applicable to the manner in which the entity expects to recover the carrying amount of the asset.662 IFRS first-time adopters must also ...