FAC3701 Income taxes IAS 12

OVER VIEW The objective of this statement is to prescribe the accounting treatment for the current & future tax consequences of: the future recovery/(settlement) of the carrying amount of assets/(liabilities) that are recognised in an enterprise's statement of financial position, and transactions and other events of the current period that are recognised in an entity's financial statements.

DEFERRED TAX Tax Base OF a liability an asset asset or liability is the amount attributable to that asset or liability for tax purposes. Amount will be deductible in future against any taxable economic benefits flowing into the entity when it recovers/settles the carrying amount of the asset. carrying amount of the liability, less any amount, that will be deductible for tax purposes in respect of that liability in future.

Deferred TAX rules Rules Deferred Tax Deferred Tax Asset Liability 1. CAA > TBA 3.CAA < TBA 2. CAL < TBL 4.CAL > TBL Dr Def Tax expense (SCI) Dr Def Tax Asset- SARS (SFP) Cr Def Tax Liability – Cr Def Tax (SCI) Provision Made for Def Tax expense Provision Made for Def Tax. Deferred Tax Liability Deferred Tax Asset Rules

IAS 12 Income Taxes Differences LIABILITY Payable in Future Due to Taxable Temporary Differences (Temporary future Profits - from small amounts deductible in future) ASSET Recoverable in Future Due to Deductible Temporary Differences Tax Credits Carried Forward Tax Losses Carried Forward 

IAS 12 Income Taxes Objective Except Same Treatment of Underlying Transactions & Other Events And Tax Consequences of Transactions & Other Events for Transactions recognised In equity – thus Tax effects Recognised in equity

Financial Position Approach IAS 12 Income Taxes Financial Position Approach

Financial Position Approach The balance sheet approach to deferred tax: [CA – TB = temporary difference] x tax rate = D Tax To Calculate Deferred Tax Draw up S F P Then Calculate Deferred Tax On Closing amounts Carry Amounts Assets and Liabilities Tax Bases Assets and Liabilities

Exempt Differences Goodwill Initial Recognition Asset / Liability With Un- Taxable Amortization Initial Recognition Asset / Liability 2.2 Neither affects – Accounting or Taxable profit 2.3 Transaction Not a business combination

IAS 12 Income Taxes RECOGNITION Liability – Recognised for ALL – taxable - Temporary Differences Asset – Recognised – Extent - Probable Taxable Profit – Available- Against which– Deductible- Temporary Differences - Can be utilised

ASSETs v/s Liabilities Resource Controlled Past event Reliable measurement Cost Economic Benefits Expected to flow INTO A S E T

ASSETs v/s Liabilities PRESENT OBLIGATION PAST EVENT RELIABLE MEASUREMENT Economic Benefits EXPECTED Flow OUT

IAS 12 Income Taxes Measurement of Current Tax / Def tax liability / Def Tax Asset @ Enacted Tax Rates Change in Rate Para 47 – results in Adjustment of Opening balances of both Deferred Tax Assets or Liabilites

IAS 12 Income Taxes Pa page 54 Add one more year to the Example

IAS 12 Income Taxes