Income Tax: Impact of revaluation


Can somebody explain the impact of revaluation ?

The different accounting treatment for depreciation of an equipment result in temporary differences in carrying amount and tax base, which are given below.Assume the equipment is revalued in 2015. There is a revaluation surplus of $100,000. The applicable tax rate is 30%.

Carrying amount Tax base On 31 December, 2013 $550,000 $500,000 On 31 December, 2014 $500,000 $400,000 On 31 December, 2015 $700,000 $300,000

The deferred tax liability that should be reflected on the balance sheet for 2015 is closest to: A. $120,000. B. $90,000. C. $30,000.

Temporary difference is a tax difference between carrying amount and tax base which is supposed to revert back in next fiscal period(s).

In given example, I’d say a DTL is the temporary difference x current tax rate. (700 - 300) x 0.3 = $120.

If there would remain all else equal, in the next period, current tax liability would be increased for portion of DTL.