Editorial note: Paragraph 13 substituted by IAS 21 as amended by IASB Corrections List 9, May 2004. Previously "13 An enterprise accounts in its own currency for the cost of the non-monetary assets of a foreign operation that is integral to the reporting enterprise's operations but the taxable profit or tax loss of the foreign operation is determined in the foreign currency. (notes: (1) there may be either a taxable temporary difference or a deductible temporary difference; (2) where there is a deductible temporary difference, the resulting deferred tax asset is recognised to the extent that it is probable that sufficient taxable profit will be available, because the deferred tax asset relates to the foreign operation's own assets and liabilities, rather than to the reporting enterprise's investment in that foreign operation (paragraph 41 of the Standard); and (3) the deferred tax is recognised in the income statement, see paragraph 58 of the Standard)."

C. Examples of circumstances where the carrying amount of an asset or liability is equal to its tax base
1   Accrued expenses have already been deducted in determining an enterprise's current tax liability for the current or earlier periods.
2   A loan payable is measured at the amount originally received and this amount is the same as the amount repayable on final maturity of the loan.
3   Accrued expenses will never be deductible for tax purposes.
4   Accrued income will never be taxable.

Appendix B - Illustrative Computations and Presentation
The appendix is illustrative only and does not form part of the Standard. The purpose of the appendix is to illustrate the application of the Standard to assist in clarifying its meaning. Extracts from income statements and balance sheets are provided to show the effects on these financial statements of the transactions described below. These extracts do not necessarily conform with all the disclosure and presentation requirements of other International Accounting Standards.
All the examples in this appendix assume that the enterprises concerned have no transaction other than those described.
Example 1 - Depreciable Assets
An enterprise buys equipment for 10,000 and depreciates it on a straight line basis over its expected useful life of five years. For tax purposes, the equipment is depreciated at 25% per annum on a straight line basis. Tax losses may be carried back against taxable profit of the previous five years. In year 0, the enterprise's taxable profit was 5,000. The tax rate is 40 %.

The enterprise will recover the carrying amount of the equipment by using it to manufacture goods for resale. Therefore, the enterprise's current tax computation is as follows:
         Year
         1        2        3        4        5
Taxable income        2,000        2,000        2,000        2,000        2,000
Depreciation for tax purposes        2,500        2,500        2,500        2,500        0
Taxable profit (tax loss)        (500)        (500)        (500)        (500)        2,000
Current tax expense (income) at 40%        (200)        (200)        (200)        (200)        800
The enterprise recognises a current tax asset at the end of years 1 to 4 because it recovers the benefit of the tax loss against the taxable profit of year 0.
 

The temporary differences associated with the equipment andthe resulting deferred tax asset and liability and deferred tax expense andincome are as follows:

	Year
	1	2	3	4	5
Carrying Amount	8,000	6,000	4,000	2,000	0
Tax base	7,500	5,000	2,500	0	0
Taxable temporary difference	500	1,000	1,500	2,000	0
Opening deferred tax liability	0	200	400	600	800
Deferred tax expense (income)	200	200	200	200	(800)
Closing deferred tax liability	200	400	600	800	0

The enterprise recognises the deferred tax liability inyears 1 to 4 because the reversal of the taxable temporary difference willcreate taxable income in subsequent years. The enterprise's income statement isas follows:

	Year
	1	2	3	4	5
Income	2,000	2,000	2,000	2,000	2,000
Depreciation	2,000	2,000	2,000	2,000	2,000
Profit before tax	0	0	0	0	0
Current tax expense (income)	(200)	(200)	(200)	(200)	800
Deferred tax expense (income)	200	200	200	200	(800)
Total tax expense (income)	0	0	0	0	0
Net profit for the period	0	0	0	0	0

Example 2 - Deferred Tax Assets and Liabilities
The example deals with an enterprise over the two year period, X5 and X6. In X5 the enacted income tax rate was 40% of taxable profit. In X6 the enacted income tax rate was 35% of taxable profit.
Charitable donations are recognised as an expense when they are paid and are not deductible for tax purposes.
In X5, the enterprise was notified by the relevant authorities that they intend to pursue an action against the enterprise with respect to sulphur emissions. Although as at December X6 the action had not yet come to court the enterprise recognised a liability of 700 in X5 being its best estimate of the fine arising from the action. Fines are not deductible for tax purposes.
In X2, the enterprise incurred 1,250 of costs in relation to the development of a new product. These costs were deducted for tax purposes in X2. For accounting purposes, the enterprise capitalised this expenditure and amortised it on the straight line basis over five years. At 31/12/X4, the unamortised balance of these product development costs was 500.

In X5, the enterprise entered into an agreement with its existing employees to provide health care benefits to retirees. The enterprise recognises as an expense the cost of this plan as employees provide service. No payments to retirees were made for such benefits in X5 or X6. Health care costs are deductible for tax purposes when payments are made to retirees. The enterprise has determined that it is probable that taxable profit will be available against which any resulting deferred tax asset can be utilised.
Buildings are depreciated for accounting purposes at 5% a year on a straight line basis and at 10% a year on a straight line basis for tax purposes. Motor vehicles are depreciated for accounting purposes at 20% a year on a straight line basis and at 25% a year on a straight line basis for tax purposes. A full year's depreciation is charged for accounting purposes in the year that an asset is acquired.
At 1/1/X6, the building was revalued to 65,000 and the enterprise estimated that the remaining useful life of the building was 20 years from the date of the revaluation. The revaluation did not affect taxable profit in X6 and the taxation authorities did not adjust the tax base of the building to reflect the revaluation. In X6, the enterprise transferred 1,033 from revaluation reserve to retained earnings. This represents the difference of 1,590 between the actual depreciation on the building (3,250) and equivalent depreciation based on the cost of the building (1,660, which is the book value at 1/1/X6 of 33,200 divided by the remaining useful life of 20 years), less the related deferred tax of 557 (see paragraph 64 of the Standard).

Current Tax Expense

	X5	X6
Accounting profit	8,775	8,740
Add
Depreciation for accounting purposes	4,800	8,250
Charitable donations	500	350
Fine for environmental pollution	700	-
Product development costs	250	250
Health care benefits	2,000	1,000
	17,025	18,590

Deduct
Depreciation for tax purposes	(8,100)	(11,850)
Taxable Profit	8,925	6,740
Current tax expense at 35%		2,359

Carrying Amounts of Property, Plant andEquipment

Cost	Building	Motor Vehicles	Total
Balance at 31/12/X4	50,000	10,000	60,000
Additions X5	6,000	-	6,000
Balance at 31/12/X5	56,000	10,000	66,000
Elimination of accumulated depreciationon revaluation at 1/1/X6	(22,800)	-	(22,800)
Revaluation at 1/1/X6	31,800	-	31,800
Balance at 1/1/X6	65,000	10,000	75,000
Additions X6	-	15,000	15,000
	65,000	25,000	90,000
Accumulated Depreciation	5%	20%
Balance at 31/12/X4	20,000	4,000	24,000
Depreciation X5	2,800	2,000	4,800
Balance at 31/12/X5	22,800	6,000	28,800
Revaluation at 1/1/X6	(22,800)	-	(22,800)
Balance at 1/1/X6	-	6,000	6,000
Depreciation X6	3,250	5,000	8,250
Balance at 31/12/X6	3,250	11,000	14,250
Carrying Amount
31/12/X4	30,000	6,000	36,000
31/12/X5	33,200	4,000	37,200
31/12/X6	61,750	14,000	75,750