Summary Income tax Ias12 (current tax and deferred tax)
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Course
Chartered Accountant (ACCC)
Institution
North-West University (NWU)
My document consists of the topic called income tax known as IAS12 in the international financial reporting standards. The sub topics in the income tax is current tax and deferred tax and this notes are very helpful when you have little time to revise before tests and exams and it is summarized in ...
Income tax
1.1. Current tax expense
• Note! If asset is sold at a loss = only (iii) and (iv) – see below
Profit before tax / accounting profit xxx
Non-taxable and non-deductible differences
Less: Dividend income declared dividend x shareholding% x 80% (only if dividend tax applicable)
Less: Lease income (SU 7) (xxx)
Plus: Fines xxx
Less: Fair value adjustment not subject to CGT - land * investment property * (FV adjustment x CGT exclusion% (22.4%))
Plus: Depreciation - buildings * when SARS does not allow w&t, depr comes here *
* when SARS does not allow w&t, impairment loss here *
Plus: Impairment loss - buildings
(CA start balance - current year depr) – RA
(i) Less: Acc capital gain with equipment Proceeds from sale – original cost price
(ii) Plus: Taxable capital gain with equipment (proceeds from sale - original cost price) x 80%
* if loss is made with asset sales = ignore these 2 (i and ii), just do (iii and iv) *
Taxable / deductible temporary differences
Plus: Depreciation – equipment/vehicle/etc xxx
Less: Wear and tear - equipment/vehicle/etc original cost x wear and tear allowance %
Plus: Impairment - vehicle carrying value end balance - recoverable amount
Plus: Impairment loss of vehicle (after accident)
CA – RA (in case where asset is written off, RA = 0)
Less: Scrapping of vehicle (after serious accident)
original cost price x wear and tear allowance % x years
* when vehicles are written off *
(iii) Less: Acc non-capital gain with equipment Profit from sale (proceeds – CA) – capital gain limited to CP
(iv) Plus: Recoupment with sale of equipment proceeds with sale limited to purchase price - tax base
Less: Fair value adjustment subject to CGT - land * investment property * (FV adjustment x CGT taxable% (77.6%))
Plus: Finance cost on lease liability (SU 7) xxx
Less: Lease payment (SU 7) (xxx)
Plus: Prepaid expense (previous year) xxx
Less: Prepaid expense (current year) (xxx)
Plus: Income received in advance xxx
Less: Income receivable (xxx)
Plus: Expense payable xxx
Plus: Provision for leave payment provision end balance – provision opening balance
Plus: Credit losses xxx
Allowance for credit losses:
Plus: Acc allowance 20X2 xxx
Less: Acc allowance 20X1 (xxx)
Less: Tax allowance 20X2 acc allowance 20X2 x 25%
Plus: Tax allowance 20X1 acc allowance 20X1 x 25%
Taxable profit before utilisation of unused tax loss xxx
Less: Assessed loss brought forward assessed loss for previous year
Taxable income xxx
Current tax expense @ 28% taxable income x 28%
• Current tax liability: Recognised for tax payable in the future (debt owing to SARS) / if current tax calculated is >R0
Dr Income tax (p/l) Cr SARS liability (SFP)
, • Current tax asset: Recognised if amount already paid to SARS is more than amount owing / if current tax calculated is <R0
Dr SARS liability (SFP) Cr Bank (SFP)
IMPORTANT TO REMEMBER:
Current tax calc is not necessary when the assessed loss for the year is given; thus no amount should be included in the current tax line in the income
tax expense note → assessed loss = no current tax
1.2. Deferred tax (DT)
• Deferred tax is about what will happen in the FUTURE
• Deferred tax liability: Tax payable in future due to taxable/deductible temporary difference
• Deferred tax asset: Tax recoverable in future in respect of taxable/deductible temporary differences
• Recognition of DT adjustments:
− In P/L = if temporary difference arose due to something in P/L
− In OCI = if temporary difference arose due to something in OCI
Calculate the deferred tax (statement of financial position approach)
• DT balance = expected FUTURE tax payable / deductible on expected FUTURE transaction already recognized in FS
• CGT rate (22.4%) = CGT taxable rate (for example 80%) x tax rate (28%)
• Asset: CA > TB = L ; CA < TB = A Liability: CA > TB = A ; CA < TB = L
• Deferred tax liabilities: Dr Income tax expense (p/l) Cr Deferred tax (SFP)
• Deferred tax assets: Dr Deferred tax (SFP) Cr Income tax expense (p/l)
CM = Cost model; RIA = Received in advance; CL = credit losses
Movements
Assessed loss xxxi - CA – tax base 28% xxx P/L
Bank and cash End balance End balance - 28% - P/L
Building FV at year end
Historical CA HCA at year end TB at year end CA – tax base 28% - P/L
Revaluation Balancing amount - CA – tax base 28% ( xxx ) OCI
Equipment (CM) CA at year end TB at year end CA – tax base 28% xxx P/L
Equipment (use & sell) FV at year end
CA less res. value Balancing amount - CA – tax base 28% ( xxx ) OCI
Res. value less cost RV – CP - CA – tax base 22.4% ( xxx ) OCI
Below cost Cost price TB at end of year CA – tax base 28% ( xxx ) P/L
Goodwill (intangible A) End balance - CA – tax base 28% Exempt P/L
Income RIA xxx - CA – tax base 28% xxx P/L
Land (investment P) FV at year end
Cost Cost price Cost price - 28% - P/L
Above cost Balancing amount - CA – tax base 22.4% ( xxx ) P/L
Long-term loan End balance End balance - 22.4% - P/L
Trade debtors
Gross debtors End balance End balance - 28% - P/L
Allowance for CL xxx AFCL x 25% CA – tax base 28% xxx P/L
Website (intangible A) xxx - CA – tax base 28% ( xxx ) P/L
Closing balance xxx xxx xxx xxx
IMPORTANT: if asset is held for UNDETERMINED use = treat like investment property; if USED building bought → TB = 0; financial assets
should also be included in calc above → at CGT rate to OCI
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