Final answer:
The deferred tax under IAS 12 as a result of a building revaluation by Berlin Limited involves adjusting the deferred tax liability to reflect the change in the building's value. An increase in deferred tax liability is recorded in the journal entries to reflect the tax effects stemming from the revaluation.
Step-by-step explanation:
The treatment of deferred tax under IAS 12 in the context of a building revaluation requires creating or adjusting the deferred tax liability or asset to reflect the tax effects of the revaluation. When Berlin Limited revalued its building from £374,400 to £460,800, this created a revaluation surplus of £86,400.
Considering a tax rate of 20%, the increase in deferred tax liability due to revaluation is £17,280 (£86,400 * 20%). However, since the difference between the carrying value of the asset and its tax base at the end of the year is £155,520, we need to adjust the deferred tax liability to reflect this tax effect.
The deferred tax liability for the year-end can be calculated as 20% of £155,520 which equals £31,104. As the initial deferred tax liability was £7,979, the increase in provision for deferred tax would be £31,104 minus £7,979, resulting in £23,125.