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Summary IAS 12 Income taxes
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this document is a complete summary of income taxes with lots of examples and steps on how to attempt questions
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IAS 12 :INCOME
TAXES
1
,INCOME TAX EXPENSE
major component of tax
SA normal taxation
current taxation
current year
prior year (over/under provision)
Deferred tax
originating & reversing temporary differences (movement from CB – OB)
➔ Research expense (CB – OB @ new rate) BUT remember if you have a limit you must use the
➔ Accrued leave balance AFTER the limit and after the rate change
➔ Income received in advance Your limit can be ZERO then just say CB- 0
➔ Prepaid expense
➔ Capital allowances If the amount was limited in CY
➔ Investment property Limited CB – OB = movement
DON’T INCLUDE REVAL ON LAND OR LAND AT ALL
because this goes through OCI!!!
rate change (take the amount of deferred tax from prior year x
change %/original %) BUT remember if there was a limit
use the limited balance
TAX RECONCILIATION
accounting profit Profit before tax ( - interest to
SARS)
tax @ applicable rate %
Prior year (over)/ under provision
NOT deductible +
fine
Interest not deductible
Legal costs not deductible
Donation
Non- deductible depreciation
NOT taxable ()
dividends ()
Of FV adjustment not taxable (FV adjust x 20% x tax %)
Non taxable affect on investment property () (revaluation x 20% x28%
This is ONLY the revaluation
amount for the current year
CA CY – CA prev year)
Tax effect due to rate change If increase= +
Tax effect due to deductible temporary differences NOT previously recognized () They are now being recognized
Tax effect due to deductible temporary difference NOT recognized + Current year
2
, Tax (expense) Net-of-tax
Before tax amount
benefit amount
(22 400)
100 000 77 600
Profit with revaluation of property (remember CGT)
100 000 (22 400) 77 600
Tax effects relating to each component of other comprehensive income
DEFERRED TAX
analysis of temporary differences.
capital allowances
income received in advance
Research expense
dr Tax expense (deferred) (P/L)
cr Deferred tax (SFP)
(recognise deferred tax 2007:
Rate change + movement in deferred tax
CURRENT TAX calculation:
PBT
Dividends received ()
Depreciation +
Fine paid to SARS +
Wear & tear ()
Income received in advance () PRIOR YEAR = minus because we are taxed on
current year
BECAUSE remember you are taxed on the
earlier of receipt or accrual
Income received in advance + CURRENT YEAR
To remember think current= +
Expenses prepaid + PRIOR year
Expenses prepaid () CY
Provision for leave + CY
Provision for leave () Prior year
Depreciation not deductible +
Building allowance ()
Investment property revaluation () (CY revaluation)
Sec8(4)a recoupment +
Loss on sale +
3
, CURRENT TAX:
Current tax calculation summary
profit before tax Needs to be AFTER depreciation & after profit on sale
(so if the question has NOT done this you need to do
PBT – dep + profit on sale to get your starting point –
interest
PBT= must be before dividends paid x
PLUS depreciation Not deductible x
PLUS profit on sale of machinery Not deductible x
PLUS wear & tear s8(4)(a) Recoupment Not deductible x
MINUS wear & tear (OB- CB + purchases ) ()
MINUS income received in advance (PREVIOUS year) (not taxable ) ()
PLUS income received in advance (CURRENT year) (not taxable) x
PLUS expense paid in advance (PREVIOUS year) (not taxable( x
MINUS expense paid in advance (CURRENT year) (not taxable) ()
MINUS bonus paid Not taxable ()
PLUS fine paid to SARS Permanent difference x
PLUS bonus payable x
PLUS interest to SARS Permanent difference x
MINUS dividends received (not taxed if permanent difference) ()
PLUS donation NOT deductible x
PLUS legal costs NOT deductible x
MINUS FV adjustment on investment property Permanent difference (if increase= -) ()
MINUS building allowance on investment property Permanent difference ()
TAXABLE INCOME X
current tax @ 28% y
dr Tax expense (current) (P/L) X
cr SARS (SFP) x
(recognise current tax 2007:
4
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