1. Tax & Deferred Tax
IAS 12

2. IAS 12 INCOME TAXES
IAS 12 covers the general principles of accounting for
tax. Income tax consist of three elements
Current tax expense
Over/under provision of tax charged the previous period
Deferred tax
11/18/2018

3. IAS 12 INCOME TAXES Current tax
This is the estimated amount of tax payable on the taxable profit of the enterprise for the period.
At the end of every accounting period the entity will estimate the amount of tax payable in respect of the period. This estimate is normally recorded as a period end adjustment by making the following double entry.
Dr Income tax expense
Cr Income tax liability
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4. IAS 12 INCOME TAXES Over and Under Provision
In the following accounting period the income tax will be paid. At this point, it will normally be discovered that the estimate was over or under the actual amount paid. Any over or under provision will then be recorded in this following accounting period as an adjustment to the income tax expense in the income statement.
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5. Profits Tax Example
Heyn has a year end of 31 December, profits tax is payable for this accounting period on 30 June after the accounting end
In 2015 the audit team estimate that the tax payable for the year will be $2m.
Year end journal Dr profits tax expense 2m Cr Current liability 2m
After the year end the computations are finalised by tax department and sum agreed with the tax authorities at a) 1.8m b)2.3m
Dr 2015 liability 200k Cr Tax (IS) 200k
Dr Tax IS 300k Cr 2015 liability 300k

6. IAS 12 INCOME TAXES Summary
When preparing the financial statement income tax reported will be as follows
Income statement= current estimate+ under provision-over provision
Statement of financial position=current estimate.
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7. IAS 12 INCOME TAXES
Deferred Tax
Deferred tax is the estimated future tax consequences of transactions and events recognised in the financial statements of the current and previous periods.
Deferred tax is an accounting measurement and does not represent the tax payable to the tax authorities.
The key to deferred tax lies in the two quite different concepts of profit.
the accounting profit
the taxable profit
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8. IAS 12 INCOME TAXES
Temporary differences
Temporary differences are differences between the carrying amount of an asset or liability in the statement of financial position and it’s tax base ( the amount attributed to that asset or liability for tax purposes).
Temporary differences can be
taxable temporary differences or
deductable temporary differences
Summary
The cumulative provision is shown on the statement of financial position at each year end while the movement is shown as an adjustment to the income tax expense on the income statement
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9. Deferred Tax- Timing differences
Heyn has a calendar year accounting period, it is based in Far Far Away.
Profit subject to tax in FFA is calculated as profit per P&L plus accounting depreciation minus tax depreciation
Heyn has accounting depreciation of 10% straight line (10 year life), zero residual value
FFA has tax depreciation of 50% (2 year life), zero residual balance. Tax is charged at 30%
1 January 2016 Heyn buys an asset for $2m
If we project forward to the end of the life of the asset Heyn will receive $2m deduction for accounting and $2m deduction for tax
In 2016 Heyn has a profit of $5m before depreciation

10. Deferred Tax- Timing differences
31 December 2016
Accounting
Tax Accounts
Profit
5000
Depn
(200)
(1000)
Net
4800
4000
1440
1200

11. Deferred Tax- Timing differences
Now imagine what is going to happen over the remaining life of the asset as at 1 January 2017
Profit
Plus accounting depreciation 4800
Minus tax depreciation 4000
Therefore we will have additional profits chargeable to tax of 800, that gives rise to a tax liability of 240
Quick calculation for F7. ((NBV of PPE)-(TWDV of PPE)) tax rate will give deferred tax liability. These are timing differences which will reverse over time
If TWDV> NBV there will be an asset

12. Deferred Tax Assets & Other Items
Deferred tax assets are recognise in so far as they will be utilised
Other items
Trading losses
Permanent differences ie entertaining expenses

13. Disclosure, includes IAS 12.80 requires the following disclosures:
major components of tax expense (tax income) [IAS 12.79] Examples include:
current tax expense (income)
any adjustments of taxes of prior periods
amount of deferred tax expense (income) relating to the origination and reversal of temporary differences
amount of deferred tax expense (income) relating to changes in tax rates or the imposition of new taxes
amount of the benefit arising from a previously unrecognised tax loss, tax credit or temporary difference of a prior period
write down, or reversal of a previous write down, of a deferred tax asset
amount of tax expense (income) relating to changes in accounting policies and corrections of errors.