FR - IAS 12 - Income Tax Flipbook PDF

IAS 12

---

100 Views
55 Downloads
FLIP PDF 229.97KB

DOWNLOAD FLIP

REPORT DMCA

F7-FINANCIAL REPORTING

IAS 12 – INCOME TAXES

Definitions Accounting profit: Net profit (or loss) for the reporting period before deducting tax expense. Taxable Profit: Profit (or loss) for a period, determined in accordance with the local tax authority's rules, upon which income taxes are payable.

Definitions Tax Expense: consists of three elements: 

Current tax expense



Adjustments to tax charges of prior periods (over/under provisions)



Transfers to/from deferred tax.

Current Tax The amount of income tax payable (or recoverable) in respect of the taxable profit (or loss) for the period. Accounting for Current Tax: 

Tax payable for current period treated as expense and adjustment of under/over provision of prior periods



If tax expense and provision at year end are greater than the payment, the difference is disclosed as current tax liability and vice versa.

Current Tax Accounting for Current Tax: 

Current tax = Taxable profits/loss x %age of tax



Tax expense/income will follow the treatment of line item (OCI /P&L/SOCIE )

Current Tax Under/Over Provision related to previous years Trial balance(single effect) Under provision (Expense) Over provision (Income)

Dr. xx

Cr. xx

Current Tax – Current year Tax Payable Dr. Tax Expense Cr. Provision for tax

Tax Refund Dr. Tax Refund Cr. Tax Expense

Current Tax – Prior period Under Provision • Shown as debit in Trial Balance • Increases the tax expense Over Provision • Shown as credit in Trial Balance • Decreases the tax expense

Deferred Tax Tax Base: The amount attributed to an asset or liability for tax purposes. Tax base-Asset: The amount that will be deductible for tax purposes against any future taxable benefits derived from the asset. Tax base-Liability: The carrying amount of a liability less any amount that will be deductible for tax purposes in respect of that liability in future periods.

Deferred Tax Accounting for Deferred Tax: 

Deferred tax liabilities: Income taxes payable in future periods in respect of taxable temporary differences.



Deferred tax assets: Income taxes recoverable in future periods in respect of: •

Deductible temporary differences

•

The carry forward of unused tax losses

•

The carry forward of unused tax credits

Temporary Differences Temporary Differences are differences between the carrying amount of an asset or liability in the SOFP and its tax base.

Temporary Differences Taxable

Deductible

Measurement 

Calculate temporary difference between carrying value and tax base



Deferred tax = Temporary difference x Tax rate (% of tax)

Measurement 

Measurement is at tax rates expected to be applicable in the period when the asset is realised or liability is settled.



The rates used should be enacted or substantially enacted by the end of the reporting period.



It depends upon the expectations of the manner in which the recovery or settlement of tax asset/ liability will take place.

Measurement 

The values cannot be discounted.



Deferred tax expense is recognized in the statement of profit or loss.



If the tax relates to items, credited or charged directly to equity, then the current tax and deferred tax shall also be directly treated in equity.

Double entries Statement of profit or loss item 

Increase in Deferred tax liability Dr. Tax Expense Cr. Deferred tax liability



Decrease in Deferred tax liability Dr. Deferred tax liability Cr. Tax expense

Deferred tax due to revaluation Dr. Revaluation reserve/ OCI Cr. Deferred tax liability

Presentation 

Current tax assets and liabilities are offset in the SOFP, if the entity has the legal right and the intention to settle on a net basis.



Deferred tax assets and liabilities are offset in the SOFP only if the entity has the legal right to settle on a net basis.

June 2015