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The objective of IAS 12 is to prescribe the accounting treatment for…
The objective of IAS 12 is to prescribe the accounting treatment for income taxes.
current tax vs. deffered tax
Current income tax is the amount of income tax that you actually need to pay to your tax office
Deferred income tax is an accounting measure used to match the tax effect of transactions with their accounting impact and thereby produce less distorted results
current income tax
Measurement: current tax income=taxable profit/loss * tax rate
Current income tax expense shall be recognized directly to profit or loss. If the current tax arises from a transaction or event recognized outside profit or loss, either in other comprehensive income or directly in equity, then current income tax shall be recognized in the same way.
Current tax is the amount of income tax payable (recoverable) in respect of the taxable profit (loss) for a period
accounting vs. taxable profit
Accounting profit is profit or loss for a period before deducting tax expense. IAS 12 defines accounting profit as a before-tax figure in order to be consistent with the definition of a taxable profit.
Taxable profit (tax loss) is the profit (loss) for a period determined in accordance with the rules established by the taxation authorities upon which income taxes are payable (recoverable).
deferred tax
Measurement: necessary to apply the tax rates that are expected to apply to the period when the asset is realized or the liability is settled
Recognition: in almost all situations as an income or an expense in profit or loss for the period.
adjustments to accounting profit
Add back the expenses recognized but non-deductible for tax purposes
Add income not recognized but included under tax regulations
Deduct expenses not recognized but deductible for tax purposes
Deduct income recognized but not taxable under tax regulations
deferred income tax
Deffered income tax=Temporary difference * tax rate
Temporary difference=carrying amount - tax base
Deferred tax liabilities result from taxable temporary differences and deferred tax assets result from deductible temporary differences, unused tax losses and unused tax credits.
Tax base
Tax base of an asset is the amount that will be deductible against any taxable economic benefits that flow to an entity when it recovers the carrying amount of the asset
Tax base of a liability is its carrying amount, less any amount that will be deductible in respect of that liability in future period
deferred tax liability exceptions
No deferred tax liability shall be recognized from initial recognition of asset or liability in a transaction that is not a business combination and at the time of the transaction it affects neither accounting nor taxable profit (loss)
No deferred tax liability shall be recognized from initial recognition of goodwill
IAS 12. Income taxes