Chapter 15 Taxation

Question 1

Current Tax (IAS 12)

Answer 1

The amount of income taxes payable or recoverable in respect of taxable profit or loss for a period.

Current tax unpaid for current and prior periods is recognised as a liability.

Question 2

Deferred tax

Answer 2

A tax which is not paid but an accounting adjustment which is attributable to temporary differences.

The temporary difference is calculated as follows:
$
Carrying amount of asset/liability (in SOFP) X/(X)
Less tax base (value for tax purposes) (X)/X
—–
Temporary difference X/(X)
Deferred tax (liability)/asset (always opposite sign)
(Tax rate % x temporary difference) (X)/X

Question 3

Revaluations of non current assets

Answer 3

A taxable temporary difference occurs when an asset is revalued and no equivalent adjustment is made for tax purposes.

The gain arising on the increase in the value of the asset will be taxable on the use or sale of the asset and a deferred tax liability is recognised.

IAS 12 requires deferred tax on revaluations to be charged to other comprehensive income.

Question 4

Losses that can be carried forward

Answer 4

A deferred tax asset is recognised in respect of tax losses if it is probable that the losses can be used before they expire.