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Summary Financial accounting third year

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This download consists of every topic that will be discussed in third year Financial accounting sciences. It is made according to the University of Pretoria's standard. Every topic is in detail.

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  • January 24, 2020
  • 153
  • 2019/2020
  • Summary

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IAS 12 -INCOME TAX
Objective:

1. Accounting for current & future tax i.r.o

- future recovery of carrying amount of A + L (in SFP)

- other txs

2. Presentation & Disclosure of Income Tax



Scope:

- Includes domestic & foreign tax on taxable profits; also withholding taxes

- No VAT, rates + taxes (not charged on income)



Conceptual Framework: see booklet for detail

1. Definitions (classify): Asset or Liability

2. Recognition Criteria: Reliably measured; Probable Outflow;



Intro Definitions:

Accounting Profit: P or L for period before deducting tax exp.

Taxable Profit: P or L for period, determined ito tax authorities

Current Tax: income taxes payable/recoverable iro taxable profit (SPLOCI)

Tax Base: amount attributed to A or L for tax purposes

Effective Rate: income tax expense divided by accounting profit




1

,Recognition:

1. Current & deferred tax recognised as income or an expense in P or L except if arises from tx
outside P or L i.e.

OCI
Statement of changes in equity (IAS 8: ∆ Retained Earnings balance – tax implications)

If event/tx in P/L, any movement in DT for that event/tx must also go to P/L.

2. CA of DTA & DTL can change, without a ∆TDs, due to:

∆ Tax Rates
Reassessment of recoverability of DTAs


Current Tax

Taxable profit = Accounting profit + non-deductible expenses (depreciation) – non-
taxable income (dividend income) – tax deductions/temporary differences (timing etc.)

Note: tax rate recon for non-deductible expenses & non-taxable incomes (deferred tax
NOT included in recon)

Measurement:

Amount expected to be paid to (recovered from) tax authority
using rates enacted or substantively enacted by end of reporting period
o when change not linked to ∆ tax law: announced in budget = substantively enacted
o when change linked to ∆ tax law: approved by Parliament + signed =
substantively enacted
o changes after reporting period = non-adjusting (:. disclosure

required) Presentation:

Offsetting of current tax A or L: required/permitted; same tax authority + permits it; groups
= NO in RSA;
Where on face of FS? see booklet
Recognition: if tx accounted for in P/L then current tax effect in P/L too




2

,Deferred Tax (non-current)

Potential current tax to be paid in future based on A & L (:. net assets) in SFP:

Assets: cash hope to collect in future (sell inv.; collect from debtors; PPE used to generate income)
Liab.: = claims :. reduces assets & decreases profit in future THUS affects tax to be paid
We account for the future tax because a “PAST EVENT” has already taken place (A/L on SFP)
Difference between CA (per IFRS) and Tax Base (per Income Tax legislation) :. = tax profit




NOTE:

2013 SPLOCI: subtract #2

2014 SPLOCI: subtract full prepaid expense; + back #2 (don’t get deduction twice!!)




Measurement:

Amount expected to be paid to (recovered from) tax authority in future
using rates enacted or substantively enacted by end of reporting period
o when change not linked to ∆ tax law: announced in budget = substantively enacted
o when change linked to ∆ tax law: approved by Parliament + signed =
substantively enacted
o changes after reporting period = non-adjusting (:. disclosure required)
DTA & DTL not discounted (impracticable; not comparable bet.

entities) Presentation:

Shall offset DTA and DTL if:
o legally enforceable right




3

, o same tax authority
However, if Group – keep DT A/L of parent separate from DT A/L of subsidiaries
Tax expense (Movement in Deferred Tax balance) presented as part of P or L in

SPLOCI Disclosure:

See booklet ‘Part C’



Movement in SPLOCI:

∆ Tax Rate (this done first)
o If question says “change implemented from year ending on/after dd/mm/yyyy”
then both DT & CT
o If question says “change implemented from year starting on/after dd/mm/yyyy”
then only DT but adjustment for CT in recon
TDs


Deferred Tax Liability

Definition: income tax payable in future iro taxable Temp Diffs (TDs that result in
taxable amounts in det. taxable profit of future periods)

Recognition: recognised for ALL taxable TDs EXCEPT:




Arose on initial recognition and
Tx not a business combination and
Tx doesn’t affect accounting profit/loss (consider jnl entry on initial recog) and
Tx doesn’t affect taxable profit/loss

WHY? If not, DTL recognised that will never result in actual claim :. not faithful representation

NOTE: If EXEMPT, state this as reason!




4

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