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Summary IAS 12 Deferred Tax
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Summary of IAS 12 for third year BAcc course
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IAS 12: INCOME TAXESSCI:
Profit before tax XXX
Income tax expense (X) Current Tax (Normal SA tax)
- SARS
- Based on transactions/Taxable income (PBT & adjust)
- Current period
Deferred tax (movement of DT as per SFP)
- Accounting principle
- Based on balances
- Future period
Profit for the year XX
Other comprehensive income X
Total Comprehensive income for the year XXX
SFP:
Non-current assets/liabilities (>12 months)
Deferred tax XX Balance @ y/e
Tax consequences of future periods (SFP)
Income tax recoverable or payable in the near future
Current assets/liabilities (<12 months)
SARS XX Current tax receivable/payable
Tax consequences of current and prior periods (SCI)
CURRENT TAX
− On year end company calculate current tax payable on taxable income
o Taxable income = profit for period, determined in accordance with rules of taxation authorities, upon
which taxes are payable
o Accounting profit is adjusted to calculate taxable income. (Add back acc items and adjust with tax
items)
− General differences:
o Non-deductible interest and non-taxable income
o Depreciation (acc) vs wear and tear (SARS)
o Profit/loss with sale of asset (acc) vs recoupment (SARS)
o Movement on provision for bad debts (acc) vs % deduction based on bad debts on y/e (SARS)
Provision for tax/SARS (SFP) → Current Asset/Liability
Bank (1st Provision) [1] Income tax expense [3]
Profit budgeted for year x tax rate /2 (Taxable income x tax rate @ y/e)
Bank (2nd Provision) [2] Income tax expense [4]
Income tax expense [4]
Bank (3rd) [5]
Pay if insufficient provisional payments
Company provision (Income tax expense) VS SARS assessment (Actual tax payable)
- Over provision – company provided too much
- Under provision – company provided too little
DEFERRED TAX:
ASSETS/LIABILITIES
Carrying value (SFP): Tax Base:
- Accounting - Tax
- IFRS - Income tax legislation
Temporary differences
[1] Taxable → will have to pay more tax in future
[2] Deductible → paying too much now, will receive benefit later
x tax rate = RESULT IN: Deferred tax
Asset: Dt (Deductible)
Liability: Ct (Taxable)
1
, − Objective & Scope (.01-.04)
− Definitions (.05-.06)
→ DT = liability/asset of IT payable/recoverable in future
o DT-liability: income tax payable in future in respect of taxable temp. differences
o DT-asset: amounts of income taxes recoverable in future in respect of deductible temporary
differences
Carrying amount of Less Tax base of the = Temporary difference
asset/liability asset/liability
Asset: Amount
deductible in future
(CA – already allowed)
Liability: Already
deducted/Not
deductible in future
Temporary difference Multiplied by Tax rate (expected in = D/T balance (asset or
future) liability) in SFP
D/T balance of Year 2 Less D/T balance of Year 1 = Movement in D/T in
SCI
[1] TAXABLE TEMPORARY DIFFERENCES
- Recognise a D/T liability (income tax payable in the future)
- ASSETS: CA > TB
- LIABILITIES: CA < TB
[2] DEDUCTIBLE TEMPORARY DIFFERENCES
- Recognise a D/T asset (income recoverable in future)
- ASSETS: CA < TB
- LIABILITIES: CA > TB
→ Unlimited taxable profit → recognise entire amount
→ Limited to taxable income in the future (require efficient evidence of future taxable income)
Accept income and expenses being taxed/deductible → earliest of receipt or accrual
Item: CA TB TD D/T Dt or Ct
DEBITS CA > TB T Ct
(Assets/EPA) CA < TB D Dt
CREDITS CA > TB D Dt
(Lia/IRA) CA < TB T Ct
− Tax Base (.07-.11)
− Recognition of current tax liabilities and current tax assets (.12-.14)
− Recognition of deferred tax liabilities and deferred tax assets
o Taxable temporary differences (.15-.23)
▪ Except: (b)(ii): E.g. office building – however, if that revalued – D/T implications
o Deductible temporary differences (.24-.45)
− Measurement (.46-.56)
o .51: through sale or use → assume assets carrying amount is recovered through use.
Example:
Asset: CP = R2000
Depr: 10 years → CA
W&t: 20 years → TB
SCI
Sales Xxx
Min Cost of sales (xxx)
Plus income Xx
2
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