Question

Which of the following statements is true regarding temporary differences for leases under IFRS?

A. A lease liability will result in a taxable temporary difference.
B. The tax basis for both the leased asset and lease liability will be nil.
C. The accounting basis for the asset is the balance of the lease liability.
D. The accounting basis for the lease liability is nil.

Answer 1

Option (B), The true statement is that the tax basis for both the leased asset and lease liability will be nil under IFRS, as initial recognition does not usually have immediate tax consequences and creates a temporary difference.

Step-by-step explanation:

The statement that is true regarding temporary differences for leases under IFRS is B. The tax basis for both the leased asset and lease liability will be nil. When a company recognizes a leased asset and corresponding lease liability, the initial recognition typically results in no immediate tax consequence.

The tax basis of both the asset and liability is generally considered to be zero, as most taxation authorities will not recognize the lease obligations and corresponding right-of-use asset on the balance sheet under operating leases. Over time, the accounting basis and tax basis may diverge, creating temporary differences that can lead to deferred tax assets or liabilities.