Вы находитесь на странице: 1из 12

z

ACCOUNTING
FOR INCOME
TAX
 Accounting profit – It is the profit or loss for a period before
deducting tax expense.
z
 Taxable profit (tax loss) - The profit (loss) for a period,
determined in accordance with the rules established by the
taxation authorities, upon which income taxes are payable
(recoverable).

 Tax expense (tax income) - The aggregate amount


included in the determination of profit or loss for the period
in respect of current tax and deferred tax.
Definition of
 Current tax - The amount of income taxes payable
Terms (recoverable) in respect of the taxable profit (tax loss) for a
period.

 Deferred tax liabilities - The amounts of income taxes


payable in future periods in respect of taxable temporary
differences.

 Deferred tax assets - The amounts of income taxes


recoverable in future periods in respect of: (a) deductible
temporary differences; (b) the carryforward of unused tax
losses; and (c) the carryforward of unused tax credits.
z
 Temporary differences - The differences between the
carrying amount of an asset or liability in the statement of
financial position and its tax base. Temporary differences
may be either:

 Taxable temporary differences - Temporary


differences that will result in taxable amounts in
Definition of determining taxable profit (tax loss) of future periods
when the carrying amount of the asset or liability is
Terms recovered or settled.

 Deductible temporary differences - Temporary


differences that will result in amounts that are
deductible in determining taxable profit (tax loss) of
future periods when the carrying amount of the asset
or liability is recovered or settled.

 Tax base of an asset or liability - The amount attributed to


that asset or liability for tax purposes.
z
Current Tax

Current tax for the current and


prior periods is recognized as a Current tax assets and liabili-
liability to the extent that it has not ties are measured at the
yet been settled, and as an asset amount expected to be paid to
to the extent that the amounts (recovered from) taxation au-
already paid exceed the amount thorities, using the rates/laws
due. The benefit of a tax loss that have been enacted or
which can be carried back to substantively enacted by the
recover current tax of a prior balance sheet date.
period is recognized as an asset.
z  Permanent difference are items included in either accounting
income or taxable income but not in both.

 Permanent differences pertain to nontaxable revenue and


nondeductible expenses. Examples are:

 Interest income on deposits (subject to final tax)


Permanent  Dividends income (subject to final tax)

and  Life insurance premium (expense for financial reporting


but not deductible for tax purposes)
temporary  Tax penalties, surcharges and fines (nondeductible)

difference  Temporary differences include timing difference. Items of


expenses and revenues are included in both accounting
income and tax income, but at different periods.

 Taxable temporary difference creates deferred tax liability

 Deductible temporary difference creates deferred tax


asset
z

 The tax base of an item is crucial in determining the amount of any


temporary difference, and effectively represents the amount at
which the asset or liability would be recorded in a tax-based
balance sheet. IAS 12 provides the following guidance on determin-
ing tax bases:

 Assets. The tax base of an asset is the amount that will be


deductible against taxable economic benefits from recovering
Tax bases the carrying amount of the asset. Where recovery of an asset
will have no tax consequences, the tax base is equal to the
carrying amount.

 Revenue received in advance. The tax base of the recog-


nized liability is its carrying amount, less revenue that will not
be taxable in future periods.

 Other liabilities. The tax base of a liability is its carrying


amount, less any amount that will be deductible for tax
purposes in respect of that liability in future periods.
z

Tax bases
 Unrecognized items. If items have a tax base but are not recognized in
the statement of financial position, the carrying amount is nil.

 Tax bases not immediately apparent. If the tax base of an item is not
immediately apparent, the tax base should effectively be determined in
such as manner to ensure the future tax consequences of recovery or
settlement of the item is recognized as a deferred tax amount.

 Consolidated financial statements. In consolidated financial state-


ments, the carrying amounts in the consolidated financial statements are
used, and the tax bases determined by reference to any consolidated tax
return (or otherwise from the tax returns of each entity in the group).
Deferred
z Situation Temporary differences
tax
Deferred  Accounting income is higher  Revenue and gains included in accounting income
tax than taxable income for current period but taxable in the future.
liability  Carrying amount of asset is  Expenses and losses deducted from taxable
higher than its tax base income but deductible for accounting purposes in
 Carrying amount of liability is the future.
lower than tax base
Deferred  Taxable income is higher than  Revenue and gains included in taxable income for
tax asset accounting income current period but included in accounting income in
 Tax base of assets is higher the future.
than its carrying amount  Expenses and losses deducted from accounting
 Tax base of liabilities is lower income but deductible for tax purposes in the future.
than carrying amount of
liability.

Deferred tax liability and deferred tax asset


z
Calculation of deferred taxes
 Deferred tax assets and deferred tax liabilities can be calculated using the
following formulae:
 Temporary difference = Carrying amount – Tax base
 Deferred tax asset or liability = Temporary difference x Tax rate
 Deferred tax expense = Increase in deferred tax liability –
Increase in deferred tax asset
 Tax expense = Current tax expense + Deferred tax
expense

 The following formula can be used in the calculation of deferred taxes


arising from unused tax losses or unused tax credits:
 Deferred tax asset = Unused tax loss or unused tax
credits x Tax rate
z
Presentation

 Current tax assets and current tax liabilities can only be offset in the
statement of financial position if the entity has the legal right and
the intention to settle on a net basis.

 Deferred taxes shall be classified as noncurrent asset or liability, as


the case may be. Deferred taxes shall not be discounted.

 Deferred tax assets and deferred tax liabilities can only be offset in
the statement of financial position if the entity has the legal right to
settle current tax amounts on a net basis and the deferred tax
amounts are levied by the same taxing authority on the same entity
or different entities that intend to realize the asset and settle the
liability at the same time.
z
Recognition of deferred tax liabilities

 The general principle in IAS 12 is that a deferred tax liability is recognized


for all taxable temporary differences. There are three exceptions to the re-
quirement to recognize a deferred tax liability, as follows:
 Liabilities arising from initial recognition of goodwill

 Liabilities arising from the initial recognition of an asset/liability other than in a


business combination which, at the time of the transaction, does not affect either
the accounting or the taxable profit.

 Liabilities arising from temporary differences associated with investments in sub-


sidiaries, branches, and associates, and interests in joint arrangements, but only
to the extent that the entity is able to control the timing of the reversal of the dif-
ferences and it is probable that the reversal will not occur in the foreseeable
future.
z
Recognition of deferred tax assets
 A deferred tax asset is recognized for deductible temporary differences, unused tax losses
and unused tax credits to the extent that it is probable that taxable profit will be available
against which the deductible temporary differences can be utilized, unless the deferred tax
asset arises from the initial recognition of an asset or liability other than in a business combi-
nation which, at the time of the transaction, does not affect accounting profit or taxable profit.

 Deferred tax assets for deductible temporary differences arising from investments in sub-
sidiaries, branches and associates, and interests in joint arrangements, are only recognized
to the extent that it is probable that the temporary difference will reverse in the foreseeable
future and that taxable profit will be available against which the temporary difference will be
utilized.

 The carrying amount of deferred tax assets are reviewed at the end of each reporting period
and reduced to the extent that it is no longer probable that sufficient taxable profit will be
available to allow the benefit of part or all of that deferred tax asset to be utilized.

 A deferred tax asset is recognized for an unused tax loss carry forward or unused tax credit
if, and only if, it is considered probable that there will be sufficient future taxable profit
against which the loss or credit carry forward can be utilized.