2OVER VIEWThe 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, andtransactions and other events of the current period that are recognised in an entity's financial statements.
3DEFERRED 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.
4Deferred TAX rules Rules Deferred Tax Deferred Tax Asset Liability 1. CAA > TBA 3.CAA < TBA2. CAL < TBL CAL > TBLDr 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 TaxLiabilityDeferred TaxAssetRules
5IAS 12 Income Taxes Differences LIABILITY Payable in Future Due to Taxable Temporary Differences (Temporary future Profits - from small amounts deductible in future)ASSETRecoverable in FutureDue toDeductible Temporary DifferencesTax Credits Carried ForwardTax Losses Carried Forward
6IAS 12 Income Taxes Objective Except Same Treatment of Underlying Transactions & Other EventsAnd Tax Consequences of Transactions & Other Eventsfor Transactions recognised In equity – thus Tax effects Recognised in equity
7Financial Position Approach IAS 12 Income TaxesFinancial Position Approach
8Financial Position Approach The balance sheet approach to deferred tax:[CA – TB = temporary difference] x tax rate = D TaxTo Calculate Deferred TaxDraw up S F PThenCalculateDeferred TaxOn ClosingamountsCarry AmountsAssets and LiabilitiesTax BasesAssets and Liabilities
9Exempt Differences Goodwill Initial Recognition Asset / Liability With Un- Taxable AmortizationInitial RecognitionAsset / Liability2.2 Neither affects – Accounting or Taxable profit2.3 Transaction Not a business combination
10IAS 12 Income Taxes RECOGNITION Liability – Recognised for ALL – taxable - Temporary DifferencesAsset – Recognised – Extent - Probable Taxable Profit – Available- Against which– Deductible- Temporary Differences - Can be utilised
11ASSETs v/s Liabilities ResourceControlledPast eventReliable measurementCostEconomic BenefitsExpected to flow INTOASET
12ASSETs v/s Liabilities PRESENT OBLIGATIONPAST EVENTRELIABLE MEASUREMENTEconomic BenefitsEXPECTED Flow OUT
13IAS 12 Income Taxes Measurement of Current Tax / Def tax liability / Def Tax Asset@ Enacted Tax RatesChange in Rate Para 47 – results in Adjustment of Opening balances of both Deferred Tax Assets or Liabilites
14IAS 12 Income TaxesPa page 54Add one more year to the Example