Alpha668, I share your pain. I find this example impossible to reconcile.
S2000magician, this is the setup:
On 1 January 2006 a bulding is revalued to €1,200,000. Its book value just prior to the revaluation was €900,000 and its tax base was €800,000. The revaluation is of course not recognised for tax purporses.
Over the course of the year 2006, the building is depreciated at 5% straigh-line (€60,000). At the same time, depreciation for tax purposes is charged at €100,000. The tax rate is 40% and the DTL recognised on the B/S prior to the revaluation is €40,000.
When you combine the effects of the revaluation and depreciation at different rates, you see that 2006 gives rise to a €340,000 overall widening in the gap between carrying amount and tax base (€300,000 from the revaluation and €40,000 from the difference in depreciation rates).
IMO, the proper accounting for this would be:
Revaluation (1 January 2006):
- Building (assets): increase by €300,000
- Revaluation surlpus( equity): increase by €180,000
- DTL (liabilities): increase by €120,000
The different accounting and tax depreciations charged over the course of the year would give rise to a further increase in the DTL, but this time it would be charged to the income statement and not the revaluation surplus:
DTL (liabilties): increase by €16,000 (40% x €40,000)
Deferred tax charge (Income Statement ): €16,000
What the Curriculum seems to suggest is that the DTL is only increased due to the difference in depreciation rates, i.e. 40% of €40,000 - €16,000. If that is the case, the DTL recognised as at 31 December 2006 would only be €56,000 (€16,000 higher than at the beginning of the year). This is the €56,000 which alpha668 was referring to in previous posts. This is a treatment which I find baffling and it goes against my understanding of IFRS.
all the best!