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Income taxes IAS 12

Income taxes IAS 12. FAC3701 . OVER VIEW . The objective of this statement is to prescribe the accounting treatment for the current & future tax consequences of:

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Income taxes IAS 12

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  1. Income taxes IAS 12 FAC3701

  2. OVER VIEW • The objective of this statement is to prescribe the accounting treatment for the current & future tax consequences of: • the future recovery/(settlement) of the carrying amount of assets/(liabilities) that are recognised in an enterprise's statement of financial position, and • transactions and other events of the current period that are recognised in an entity's financial statements.

  3. DEFERRED TAX • asset or liability is the amount attributable to that asset or liability for tax purposes. • Amountwill be deductible in future against any taxable economic benefits flowing into the entity when it recovers/settles the carrying amount of the asset. • carrying amount of the liability, less any amount, that will be deductible for tax purposes in respect of that liability in future. Tax Base OF an asset a liability

  4. Deferred TAX rules 1. CAA > TBA 3.CAA < TBA 2. CAL < TBL 4.CAL > TBL • Dr Def Tax expense (SCI) Dr Def Tax Asset- SARS (SFP) • Cr Def Tax Liability – Cr Def Tax (SCI) Provision Made for Def Tax expense Provision Made for Def Tax. Deferred Tax Liability Deferred Tax Asset Rules

  5. IAS 12Income Taxes Differences ASSET Recoverable in Future Due to Deductible Temporary Differences Tax Credits Carried Forward Tax Losses Carried Forward  • LIABILITY • Payable in Future Due to • Taxable Temporary Differences(Temporary future Profits - from small amounts deductible in future)

  6. IAS 12Income Taxes • Same Treatment of • Underlying Transactions & Other Events • And Tax Consequences of Transactions & Other Events • for Transactions recognisedIn equity – thus Tax effects Recognised in equity Objective Except

  7. IAS 12Income Taxes Financial Position Approach

  8. Financial Position Approach • The balance sheet approach to deferred tax: • [CA – TB = temporary difference] x tax rate = D Tax • To Calculate Deferred Tax Draw up S F P Then Calculate Deferred Tax On Closing amounts • Tax Bases • Assets and Liabilities • Carry Amounts • Assets and Liabilities

  9. Exempt Differences • Goodwill • With Un- Taxable Amortization • Initial Recognition • Asset / Liability 2.2Neither affects – Accounting or Taxable profit 2.3 Transaction Not a business combination

  10. IAS 12Income Taxes RECOGNITION • Liability – Recognised for ALL – taxable - Temporary Differences • Asset – Recognised – Extent - Probable Taxable Profit – Available- Against which– Deductible- Temporary Differences - Can be utilised

  11. ASSETs v/s Liabilities • Resource • Controlled • Past event • Reliable measurement • Cost • Economic Benefits • Expected to flow INTO A S S E T

  12. ASSETs v/s Liabilities • PRESENT OBLIGATION • PAST EVENT • RELIABLE MEASUREMENT • Economic Benefits • EXPECTED Flow OUT L I A B I L I T I E S

  13. IAS 12Income Taxes Measurement of • Current Tax / Def tax liability / Def Tax Asset • @ Enacted Tax Rates • Change in Rate Para 47 – results in Adjustment of Opening balances of both Deferred Tax Assets or Liabilites

  14. IAS 12Income Taxes • Pa page 54 • Add one more year to the Example

  15. IAS 12Income Taxes

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