The Case Study - Seylan Bank

Seylan Bank PLC Annual Report 2009 189Notes to the Consolidated Financial Statements26.b.1 Movement in Temporary DifferencesDeferred Tax - Liability2009 - GROUP 2008 - GROUPBalance as at Recognised Balance as at Balance as at Recognised Balance as at1st January in Profit or Loss 31st December 1st January in Profit or Loss 31st DecemberRs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000Property, Plant &Equipment 1,071,311 (8,856) 1,062,455 949,568 121,743 1,071,311Lease Rentals 289,417 (46,715) 242,702 182,810 106,607 289,4171,360,728 (55,571) 1,305,157 1,132,378 228,350 1,360,728Deferred Tax - AssetsDefined BenefitObligation* 614,318 (611,444) 2,874 635,060 (20,742) 614,318Unclaimed Bad DebtProvision - Specific 874,778 1,576,590 2,451,368 – 874,778 874,778Bad Debt Provision -General** 128,474 20,613 149,087 377,468 (248,994) 128,474Tax Losses CarriedForward 16,843 (16,843) – – 16,843 16,8431,634,413 968,916 2,603,329 1,012,528 621,885 1,634,413Net DeferredTax Assets/Liabilities 273,685 1,024,487 1,298,172 (119,850) 393,535 273,685* Defined Benefit Obligation (Gratuity Provision)The Bank has a separate Gratuity Trust Fund which was approved by the Commissioner General of Inland Revenue. As per the approval,Bank could transfer Gratuity Provision of 62.5% of the last month’s salary of the year and deduct from the tax computation. Therefore,temporary differences have not arisen.** General ProvisionRecognition of deferred tax assets arising from General Provision at Balance Sheet date was limited to non-performing ratio of thetemporary difference. In management’s view the Bank’s NPA Ratio as at Balance Sheet date is an indicator of deferred tax assets whichcould be recovered in the future periods.The Bank has recognised deferred tax assets on the General Provision of Rs. 149,086,976 (Amount not recognised - Rs. 360,089,806).Seylan Developments PlcIn accordance with the BOI agreement dated 30th March 1993, the profits and income of the Companyare exempt from taxation until the year 2011 and at the expiry of the said period the following options areavailable for the Company.(a) Income tax payable for the Year of Assessment shall be computed at 2% of the turnover of the Companyfor 15 years;(b) The provisions of the Inland Revenue Laws for the time being imposed shall apply.In the event the Company elects option (a) no Deferred Tax Liability will arise even after the expiry of thetax exemption period.The Company needs to make the election only 90 days prior to the expiration of the said tax exemptionperiod after evaluating all tax implications prevailing at that time. Therefore, no provision has been madein the Financial Statements by the Company for Deferred Tax Liability which could be arised after the taxexemption period in the event the Company elects option (b).