Ias 12 Taxation

IAS 12 – INCOME TAX
IAS 12 – Income Tax

Taxation
• the amount payable to the tax authorities in

Current tax relation to the trading activities of the current
period
an accounting measure used to match the tax effects

of transactions with their accounting treatment. It
Deferred is not a tax that is levied by the government that
tax needs to be paid, but simply an application of the
accruals concept.
Tax
= current tax +/– movement in deferred tax
expense
Current tax
Unpaid tax for current and prior periods

should be recognised as a liability.
Overpaid current tax is recognised as an

asset.
Current tax should be accounted for in profit

or loss unless the tax relates to an item that
has been accounted for in equity.
Current tax
• If the item was disclosed as an item of other
comprehensive income and accounted for in equity, then
the tax should be disclosed as relating to other
comprehensive income and allocated to equity.
• Tax is measured at the amount expected to be paid.
• Tax rates used should be those that have been enacted
or substantively enacted by the reporting date.
Tax losses
IAS 12 also requires recognition as an asset of the benefit

relating to any tax loss that can be carried back to recover
current tax of a previous period.
Example:
In 20X7 Eramu Co paid $50,000 in tax on its profits. In 20X8
the company made tax losses of $24,000. The local tax
authority rules allow losses to be carried back to offset
against current tax of prior years.
The tax rate is 30%.
Required: Show the tax charge and tax liability for 20X8.
Tax losses
Solution
Tax repayment due on tax losses = 30% $24,000 = $7,200. The double
entry will be:
DEBIT Tax receivable (statement of financial position) $7,200
CREDIT Tax repayment (statement of profit or loss) $7,200
The tax receivable will be shown as an asset until the repayment is
received from the tax authorities.
Deferred tax
Deferred tax only arises on temporary differences.
It is not accounted for on permanent differences.
A temporary difference is the difference between the carrying

amount of an asset or liability and its tax base.
The tax base is the 'amount attributed to an asset or liability

for tax purposes'
Deferred tax
the accounting • which is the figure of profit before

profit (or the tax, reported to the shareholders
reported profit) in the published accounts
• which is the figure of profit on

the taxable profit which the taxation authorities
base their tax calculations.
Deferred tax
Permanent differences
• One-off differences between accounting and taxable

profits caused
• By certain items not being taxable/allowable
• Differences which only impact on the tax computation of
one period
• Differences which have no deferred tax consequences
whatever.
Deferred tax
Temporary differences are differences between the

carrying amount of an asset or liability in the statement of
financial position and its tax base (the amount attributed to
that asset or liability for tax purposes).
Reasons for recognising deferred tax
• The accruals concept requires its recognition.
• The deferred tax is a liability (or asset) which will
eventually be settled.
• The overstatement of profit caused by failing to allow for
deferred tax liabilities can lead to:
– overoptimistic dividend payments based on inflated
profits
– distortion of earnings per share (EPS) and of the
price/earnings (P/E) ratio, both important indicators
of a company’s performance
– shareholders being misled.
Deferred tax
• Deferred tax = temporary difference × tax rate.
• Increase in deferred tax provision:
– Dr Income tax expense/OCI
– Cr Deferred tax (SFP)
• Reduction in deferred tax provision:
– Dr Deferred tax (SFP)
– Cr Income tax expense/OCI
Deferred tax
• Deferred tax assets : a deductible temporary difference
arises where the tax base of an asset exceeds its
carrying amount
• to the extent that it is probable that taxable profit will be
available against which the deductible temporary
difference can be utilised (if a deferred tax asset arises
from the company making losses previously, they must
be able to demonstrate that sufficient forecasted profits
will be made to realise the asset).
Deferred tax
Deferred tax liabilities
– a deferred tax liability to be recognised for all taxable
temporary differences, with minor exceptions
– a taxable temporary difference arises where the
carrying amount of an asset is greater than its tax base
– the liability to be calculated using full provision
– no discounting of the liability.
Revaluation assets
• When a revaluation takes place the carrying amount of
the asset will change but the tax base will remain
unaffected.
• The difference between the carrying amount of a
revalued asset and its tax base is an example of a
temporary difference and will give rise to a deferred tax
liability or asset, which will be taken to the revaluation
surplus (and OCI), rather than the statement of profit or
loss.

Ias 12 Taxation

Uploaded by

Copyright:

Available Formats

Ias 12 Taxation

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Ias 12 Taxation

Uploaded by

Copyright:

Available Formats

IAS 12 – INCOME TAX

IAS 12 – Income Tax

• the amount payable to the tax authorities in

an accounting measure used to match the tax effects

Unpaid tax for current and prior periods

Overpaid current tax is recognised as an

Current tax should be accounted for in profit

IAS 12 also requires recognition as an asset of the benefit

Deferred tax only arises on temporary differences.

It is not accounted for on permanent differences.

A temporary difference is the difference between the carrying

The tax base is the 'amount attributed to an asset or liability

the accounting • which is the figure of profit before

• which is the figure of profit on

• One-off differences between accounting and taxable

Temporary differences are differences between the

You might also like