This Example illustrates the guidance in paragraphs
830-740-25-5 and
.
An entity has one asset, a nonmonetary asset that is not depreciated for financial reporting or tax purposes. The local currency is FC. Units of current purchasing power are referred to as CFC. The enacted tax rate is 40 percent. The asset had a price-level-adjusted financial reporting amount of CFC 350 and an indexed basis for tax purposes of CFC 100 at December 31, 19X2, both measured using CFC at December 31, 19X2. The entity has a taxable temporary difference of CFC 250 (CFC 350 - CFC 100) and a related deferred tax liability of CFC 100 (CFC 250 x 40 percent) using CFC at December 31, 19X2. General price levels increase by 50 percent in 19X3, and indexing allowed for 19X3 for tax purposes is 25 percent. At December 31, 19X3, the asset has a price-level-adjusted financial reporting amount of CFC 525 (CFC 350 x 150 percent) and an indexed basis for tax purposes of CFC 125 (CFC 100 x 125 percent), using CFC at December 31, 19X3. The entity has a taxable temporary difference of CFC 400 (CFC 525 - CFC 125) and a related deferred tax liability of CFC 160 (CFC 400 x 40 percent) at December 31, 19X3, using CFC at December 31, 19X3. The deferred tax liability at December 31, 19X2 is restated to units of current general purchasing power as of December 31, 19X3. The restated December 31, 19X2 deferred tax liability is CFC 150 (CFC 100 x 150 percent). For 19X3, the difference between CFC 160 and CFC 150 is reported as deferred tax expense in income from continuing operations. The difference between the deferred tax liability of CFC 100 at December 31, 19X2 and the restated December 31, 19X2 deferred tax liability of CFC 150 is reported in 19X3 as a restatement of beginning equity.
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\t19X2 19X3 Financial reporting basis CFC 350 ×\t1.5 CFC 525 Tax basis CFC 100 ×\t1.25 CFC 125 Temporary difference CFC 250 CFC 400 Tax rate\t× .40 ×.40 \"Deferred tax liability, end of year\" CFC 100 CFC 160 \"Deferred tax liability (restated), beginning of year\" CFC 100 ×\t1.5 CFC 150 Deferred tax expense CFC 10