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IAS 12
Wiecek and Young
IFRS Primer
Chapter 23
Income Taxes
Related
IAS
standards
12
Current GAAP comparisons
IFRS financial statement disclosures
Looking ahead
End-of-chapter practice
Related Standards
FAS
Related Standards
IAS
IAS 12 Overview
Objective
and scope
Recognition of current tax liabilities and assets
Recognition of deferred tax liabilities and assets
Measurement
Recognition of current and deferred tax
Presentation
Disclosures
If
IAS
12
Recognition
of
Deferred
Underlying assumption of accounting model:
Tax
Liabilities and Assets
Assets will be recovered for at least their carrying
amount
Liabilities will be settled for their carrying amount
IAS
12
Recognition
of
Deferred
Q. Why a tax consequence?
Tax
Liabilities
andof Assets
A.
Because
carrying amount
A & L may differ from
their tax amount or tax base = a temporary difference
Taxable temporary difference:
Taxable income is increased in future when asset
recovered/liability settled
Deductible temporary difference:
Taxable income is decreased in future when asset
recovered/liability settled
10
Taxable
$40
11
12
13
IAS
12
Recognition
of
Deferred
Future tax consequence (assume tax rate of
Tax
Liabilities
and
Assets
40%):
14
15
Deferred
16
tax assets
Probable
If
17
Complexities
18
Goodwill
A & L in a business combination
Investments in subsidiaries, associates, joint
ventures
IAS 12 Measurement
Current
tax liability
Current
19
IAS 12 Measurement
Deferred
20
21
IAS 12 Presentation
Classification - deferred taxes are non-current
A/L (IAS 1)
Offsetting - both for current and deferred: only
if same taxation authority, legal right to offset,
intent is to settle net or at same time
Tax expense includes both current and
deferred taxes
Report tax expense on profit or loss separately
from tax expense in OCI
22
IAS 12 Disclosures
Report
23
IAS 12 Disclosures
Report (continued)
24
IAS 12 Disclosures
Related to statement of financial position:
Amount of deferred tax asset/liability for each
type of temporary difference
Deductible temporary differences and other
balances with unrecognized deferred tax
assets
Nature of evidence supporting recognition of
uncertain deferred tax assets
25
26
27
Page 16 of 118
Page 31 of 118
Page 55 of 118
Looking Ahead
Income
Looking Ahead
29
Looking Ahead
30
End-of-Chapter Practice
23-1 IAS 12 provides much more guidance
on the recognition and measurement of the
tax effects derived from deductible temporary
differences than for the benefits from taxable
temporary differences.
Instructions
Write a short paragraph to explain this
situation.
31
End-of-Chapter Practice
23-2 Listed below are a number of situations that affect the financial statements.
1.
Development costs have been capitalized on the statement of financial position and are
being amortized to profit or loss over three years, but deducted as an expense for tax
purposes as incurred.
2.
Revenue is recognized as goods are delivered for financial reporting purposes, but on a
cash basis for tax purposes.
3.
An entity borrows money and pays a transaction fee on the amount borrowed. The
transaction costs are added to the debt and amortized using the effective interest method for
financial reporting purposes, although they were deducted when they were paid for tax
purposes.
4.
Pension expense is charged to profit or loss each period although tax legislation allows
entities to deduct only the contributions to the pension trustee to be deducted for tax
purposes. Expenses have always exceeded the contributions.
5.
Investment property is measured according to the revaluation model for financial reporting
purpose, resulting in valuations in excess of original cost. This method is not permitted for
tax purposes.
Instructions
For each situation described above, indicate whether the company has a deductible or a
taxable temporary difference and whether it will result in the recognition of a deferred tax
asset or a tax liability. Explain each briefly.
32
End-of-Chapter Practice
23-3 A company buys equipment for $1,000, uses it in the manufacturing of goods for resale,
and depreciates it on a straight-line basis over its five-year expected useful life. For tax
purposes, the equipment is depreciated at 25% a year on a straight-line basis. Tax losses may
be carried back against taxable profit of the previous five years. The tax rate for all years is
40%, and in 2004 the companys taxable profit was $500. In each year from 2005 to 2009, the
company reported profits before depreciation expense and taxes of $200.
Instructions
a)
For each year from 2005 to 2009, determine the companys taxable profit or loss and the
current tax expense recognized.
b)
For each year from 2005 to 2009, determine the amount of any year-end taxable or deductible
temporary difference and the related balance of the deferred tax asset or liability account
reported on the balance sheet, and the deferred tax expense reported for the year.
c)
To the extent possible with the information provided and the results of (a) and (b), prepare a
partial statement of comprehensive income for each year from 2005 to 2009.
(adapted from Appendix B of IAS 12)
33
End-of-Chapter Practice
23-4 In this chapter, flag icons identify areas
where there are GAAP differences between
IFRS requirements and national standards.
Instructions
Access the website(s) identified on the inside
back cover of this book, and prepare a concise
summary of the differences that are flagged
throughout the chapter material.
34
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