ACCA FR Deferred Tax Explained: The IAS 12 Mistakes Losing You Marks (2026)
Deferred tax isn't hard. You're just putting it in the wrong place.
Two mistakes cost FR candidates the most deferred tax marks: charging the whole balance to profit instead of the movement, and forgetting that tax on a revaluation goes to other comprehensive income — not the income statement. Fix those two and IAS 12 becomes one of the most reliable scoring areas in the paper.
Start with the only formula you need
Deferred tax exists because the accounts and the tax computation value the same things differently. The mechanics are simple:
Temporary difference = carrying amount − tax base. Deferred tax = temporary difference × tax rate. That number is your liability (or asset) on the statement of financial position. Recognise it in full, on every taxable temporary difference — even when you have no intention of selling the asset. "We won't sell it, so there's no tax" is wrong: IAS 12 requires the provision regardless.
Mistake 1: charging the closing balance to profit
This is the big one. The statement of financial position shows the closing balance. The tax charge in profit or loss only takes the movement in that balance over the year. Candidates routinely dump the whole closing figure into the income statement and overstate the tax expense.
Worked example. An asset has a carrying amount of $500,000 and a tax base of $350,000 at the year end. Tax rate is 20%.
Temporary difference = $150,000. Deferred tax liability = $150,000 × 20% = $30,000. The opening liability was $22,000.
Wrong: Dr Tax expense $30,000. That treats the full balance as this year's charge.
Right: The SFP shows the $30,000 liability. Only the increase of $8,000 ($30,000 − $22,000) goes to the income statement: Dr Tax expense $8,000, Cr Deferred tax liability $8,000.
Mistake 2: putting revaluation tax through profit
When you revalue a non-current asset upwards, the carrying amount rises but the tax base doesn't — so a taxable temporary difference is created. Tax will be due on that gain eventually, so deferred tax must be provided.
Here's where marks vanish: the deferred tax on a revaluation follows the gain it relates to. The revaluation surplus sits in other comprehensive income, so the deferred tax on it must also go to OCI — never profit or loss. IAS 12's rule is that deferred tax follows the underlying item.
Say $50,000 of the temporary difference above arose from a revaluation in the year. The deferred tax on it — $50,000 × 20% = $10,000 — is charged against the revaluation surplus in OCI, not the income statement. Get this wrong and you misstate both profit and the revaluation surplus in one move.
What to do in your next attempt
1. Build a two-line working every time. Closing balance (CA − tax base × rate), then movement (closing − opening). The balance goes to the SFP, the movement goes to profit. Label both so the marker can follow — own-figure marks need visible workings.
2. Split the movement by source. Before you post anything to profit, ask whether any part of the change came from a revaluation. That slice goes to OCI; only the rest hits the tax expense.
3. Provide in full, ignore intentions. No deduction for "we'll hold the asset". Every taxable temporary difference gets deferred tax at the period-end rate.
The bottom line
Deferred tax appears in almost every FR sitting, in both the OT sections and the financial statements question, and it's worth easy marks once the placement is right. Get the closing balance onto the SFP, send only the movement to profit, and let revaluation tax follow the gain into OCI. Right number, right place — that's the whole game.