Hello,
Can someone help me with this question:
In accordance with IAS 12 Income Taxes, what is the impact of the property revaluations on the income tax expense of Mighty IT Co for the year ended 31 December 20X5?
In December 20X5, Mighty IT Co revalued its corporate headquarters. Prior to the revaluation, the carrying amount of the building was $2m and it was revalued to $2.5m.
Mighty IT Co also revalued a sales office on the same date. The office had been purchased for $500,000 earlier in the year, but subsequent discovery of defects had reduced its value to $400,000. No depreciation had been charged on the sales office and any impairment loss is allowable for tax purposes.
Mighty IT Co's income tax rate is 30%.
My answer is $120,000 because:
Revaluation surplus:$2.5M - $2M= $0.5M
Revaluation loss: $400,000 - $ 500,000= $100,000
So $500,000-$100,000= $400,000 x 30% $120,000 income tax increase
The correct answer is: $ 30,000 income tax decrease. Why??
Thanks a lot.
