Notes of a Third year student studying Bachelors of Accounting at the University of the Free State. With this notes that i have compiled, i was able to proudly say that i received a distinction in Financial Accounting by using this notes. If you are struggling with Financial Accounting use this not...
, Where is what in IAS 12?
Follow for a discussion question
Current tax
Recognition:
What? Where? How?
Current tax is the amount of recognised in P/L, and Capital gains tax (CGT): Include
income taxes payable on taxable sometimes in “other 80% as part of “current tax”. The
profit/ loss (determined comprehensive income (for 20% not taxed
according to tax act). example CGT on revalued is a “permanent” difference and
amount of land)” or directly in will be reflected in the “tax rate
equity (IAS 12.12). recon”.
Measurement:
• Use rates enacted or substantively enacted (IAS 12.46).
Presentation: IAS 12.71 and 77
Disclosure: IAS 12.79
Deferred tax (DT) Commented [LvE1]: Discussion questions will normally
come out of deferred tax
Tax base: IAS 12.7 – 10
Tax base of an asset (IAS 12.7 and examples). Tax base of a liability and revenue received in
advance (IAS 12.8 and examples) – two
different definitions.
Recognition of DT Commented [LvE2]: If the question states recognition,
write about these concepts
Deferred tax liabilities shall 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 enacted or
substantively enacted by the end of the reporting period (IAS 12.47).
Taxable temporary difference (IAS 12.15) = DT Deductible temporary difference (IAS 12.24) = DT
liability (credit deferred tax account) with asset (debit deferred tax account)
the amount of the income taxes payable in future with the income taxes recoverable in future (IAS
(IAS 12.16 and example). 12.25 and example).
DT asset may only be recognised to the extent that it is probable that taxable
profit will be available against which the deductible temporary difference can
be utilised (IAS 12.27).
Unused tax losses and unused tax credits: IAS 12.34 – 37
DT asset (also unused tax losses and credits) may only be recognised to the
extent that it is probable that taxable profit will be available against which the
deductible temporary difference can be utilised (IAS 12.35).
, Measurement: IAS 12.47 - 56 Commented [LvE3]: If they ask measurement, write these
concepts
The measurement of DT shall reflect the tax consequences that would follow from the manner in which the
entity expects to recover or settle the carrying amount of its assets and liabilities (IAS 12.47).
If the entity is expecting to use the asset If the entity expects to sell the asset (or land that is
revalued)
calculate DT at 28% on temporary difference (TD) calculate DT at the
(IAS 12.51). effective CGT rate at 22,4% (28% x 80%) on TD to
calculate DT (IAS 12.51A and example A and IAS
12.51B).
Special rules Commented [LvE4]: If land/investment property/asset
exempt from deferred tax is asked, refer to specific rule
For investment properties measured at fair value there is a presumption that the carrying amount will be
recovered through sale, calculate DT at 22,4% on TD. If the presumption is rebutted, calculate DT at 28%
on TD (IAS12.51C).
Office building
IAS 12.15(b) determines that if a temporary difference originates from the initial recognition of an asset, but
it is
• not a business combination and at the time of the transaction,
• neither accounting profit, nor taxable profit is affected,
then no deferred tax liability is recognised with regards to that taxable temporary difference.
Other
• Dividends (IAS 12.52A and 52B and 65A).
• Deferred tax assets and liabilities are not discounted (IAS12.53).
• DT assets should be reviewed at the end of each reporting period (IAS 12.56).
Recognition: IAS 12.58 – 62A
Tax always follow the transaction/event = If transaction to equity – tax to equity (e.g. change in policy/error)
or if transaction to “other comprehensive income – tax to it as well (e.g. revaluation / fair value adjustments
on equity investments of IFRS9).
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