General loan loss provision

May 1999
Accountancy;May99, Vol. 123 Issue 1269, p84
Trade Publication
The article answers a query related to taxation in general loan loss provision of a bank. At the point where the loan loss provision is first recorded in the accounts its tax base is nil: there is therefore a deductible temporary difference between the loan loss provision's carrying amount and its tax base. Under para 24, International Accounting Standards (IAS)12, an exemption from recording the deferred tax asset for this temporary difference can only arise where the initial transaction affects neither accounting profit nor taxable profit. The recording of this loan loss provision does affect accounting profit. Accordingly, the exemption of para 24, lAS 12 does not apply, and the bank needs to record a deferred tax asset, subject to the general test that it is probable that taxable profits will be available to use this temporary difference against.


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