Part 1 : deferred tax 0%, 14.5% or 29%?

Abstract

The SAICA recently issued Circular 1/2006, Disclosures in relation to deferred tax. The purpose of this Circular is to provide guidance on additional disclosures required for deferred tax where the expected manner of recovery of the carrying amount of an asset could materially influence the deferred tax balance. However, the contents of the Circular is likely to raise a fresh debate amongst preparers and auditors of financial statements around some of the measurement issues resulting from paragraph 51. The interpretation of paragraph 51 is discussed, the application thereof to various types of assets is examined, as well as the application of the Circular. The meaning of the phrase "recovery of the carrying amount of an asset" is explored. This is done, firstly, by considering the meaning of the "carrying amount" of an asset and, secondly, by considering the potential manners in which the carrying amount of an asset can be "recovered". The application of these principles is then considered for revalued property, plant and equipment. Finally, the requirements of the Circular are highlighted.