Quote:
Originally Posted by
Snoopy
So I guess the deferred tax liability will never be crystallised?
[snip]
The other problem I have is that the total of all the revaluations that I have added up of $1,856m is rather lower than the $3,821m Balance of 'Asset Revaluation Reserve' figure that you quote Ferg!
Hi Snoopy
Apologies in advance for the long post but this got away on me, the more I dug into it.
It could be your figure is lower due to older revaluations not being included in your analysis. My interpretation of your analysis is that it is showing the amounts created out of thin air since 2009. I reckon the other $2b would have been created prior to 2009.
Regarding deferred tax. I'm not an expert on this and my knowledge is sketchy at best but the DTL on revaluations won't crystallise. There is a worked example here https://auditnz.parliament.nz/good-p...osure-examples
Click the first link of the link above for the TMCL excel example. This suggests that if you take the revaluation through the P&L under comprehensive income, then there is a partially offsetting entry into deferred tax. Using the MCY 2020AR I believe this looks like:Dr Assets $285m (page 57 is showing $296m - see *note below)
Cr Asset Reval Reserve/Equity $285m (per p49 - disclosed under comprehensive income)
Dr Asset Reval Reserve/Equity $80m (the nett of this line and the one above is $205m per p51 under ARR, note the amount on p49 of comprehensive income shows $91m due to the presence of other transactions)
Cr Deferred Tax Liability $80m (the note on p57 has $83m, so there is another PP&E deferred tax transaction, interesting that this is not far from 28% of the fixed asset difference of $13m)
NB: $80m is 28% of $285m so the values make sense.
From the notes on p56:"Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax and accounting bases of the Group’s assets and liabilities. A deferred tax asset is only recognised to the extent that there will be future taxable profit to utilise the temporary difference.
Property, plant and equipment is held on capital account for income tax purposes. Where assets are revalued, with no similar
adjustment to the tax base, a taxable temporary difference is created that is recognised in deferred tax. The deferred tax liability
on these revaluations is unlikely to crystallise in the foreseeable future under existing income tax legislation."
FYI "capital account" refers to capital vs revenue account. In IRD terminology capital accounts are non-taxable, whereas revenue accounts are taxable.
So it is confirmed these book adjustments for revaluations create a deferred tax liability that does not crystallise. Accordingly, I remove any deferred tax assets or liability from any NTA calculations along with any other IFRS adjustments I don't think represent tangible assets or liabilities (such as leased assets & liabilities under IFRS16), but I digress....
The nett ARR balance is $3,281m (p 51) - which grossed up for tax at 28% would be $4,557m gross before DTL adjustments. 28% of $4,557 is $1,276m. The current balance in the deferred tax liability account under the heading PP&E on p57 is $1,263m. A difference of $13m which is pretty close (this is completely different from the $13m difference I tagged in the journal above which I explore below and not to be confused).
*Note: regarding the $13m difference in the asset journal entry of $285 and the $296m per p57. This note from p58 might explain some of the difference:"Any surplus on revaluation of an individual item of property, plant and equipment is transferred directly to the asset revaluation reserve unless it offsets a previous decrease in value recognised in the income statement, in which case it is recognised in the income statement."
This sounds to me like the P&L received a credit of $13m in the fiscal year, based on a revaluation of an asset that was previously written down in the P&L. That probably explains why the assets are showing revaluations of $296m but the statement of comprehensive income has $285m. What is interesting is that this "credit" has been buried somewhere else in the P&L given the disclosed value for depreciation and amortisation per the P&L ties directly into the PP&E and intangible asset reconciliations ($186m + $28m = $214m per the P&L). So where is this $13m credit? I think it has been deducted from operating costs. Hmmm.....
Back to carrying values, this note from page 58 (half way down right hand side):"The carrying amount of revalued generation assets, had they been recognised at cost, would have been $1,959 million".
That is an interesting statement in light of this statement from bottom left of p58:"As a consequence of the revaluation, accumulated depreciation on these hydro and geothermal assets has been reset to nil."
So it appears that the actual cost of the generation assets is $1,959m, despite there being $170m of depreciation on generation assets (p57).
This means that $170m goes into the P&L as an expense and is (partly?) deductible for tax purposes but that is reversed, plus some, using a revaluation to give a gain in the statement of comprehensive income, which is not taxable. Interesting - I learned something today.
Lastly, the NBV of generation assets per p57 is $5,575m. The historical cost of $1,959m. The difference is $3,616m, which appears to be all revaluations given there is no accumulated depreciation. The "revaluation difference" of $3,616m is considerably less than the gross revaluation from my calc above of $4,557 - a difference of $941m. Why does this not work?