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Income taxes (Differences are mainly due to certain factors including (Tax…
Income taxes
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Income taxes
IAS 12 deals with axes on income or profits, not any other form of tax such as sales (eg VAT) or taxes on production
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Deferred taxation is not a real tax of the period which is paid to the tax authorities but rather an accounting entry to bridge the gap between accounting and taxable profits
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Measurements
IAS 12 requires current tax liabilities or assets for the current and prior periods to be measured at the amount to be paid or recovered from the taxation authorities using the tax rates and tax laws that have been substantively enacted by the end of the reporting period
This timing issue can be important when announcements are made about changes in tax laws or rates that will not be enacted for some time
Deferred tax assets and liabilities should be measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled based on tax rates and tax laws that have been substantively enacted by the end of the reporting period
Disclosures
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As issues around how much tax businesses pay has become more controversial over the last few years, disclosures are likely to be more substantial including narrative information on tax and tax risks in the front part of the annual report and accounts
Businesses in most developed jurisdictions pay tax on their profits. The more complex issues around accounting for such taxes are generally due to the difference between accounting profits and taxable profits
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