Deferred Tax Flashcards
What standard deals with income tax and deferred tax?
IAS 12
What is current tax?
It is the amount of income taxes payable or recoverable in respect of taxable profit or loss for the period.
What is taxable profit?
It is the profit for a period, determined in accordance with the rules established by the taxation authorities, upon which income taxes are payable (recoverable)
What is the accounting entry to record a tax expnese?
Debit Tax expense (P/L)
Credit Tax liability (SOFP)
What is deferred tax?
It is the estimated future tax consequences of transactions and events recognized in the financial statements of current and previous periods. It is a means of ‘ironing out’ the tax inequalities arising from temporary differences.
What are deferred tax liabilities?
They are the amounts of income taxes payable in future periods in respect of taxable temporary differences.
What are deferred tax assets?
They are the amounts of income taxes recoverable in future periods in respect of:
- deductible temporary differences
- the carry forward of unused tax losses
- the carry forward of unused tax credits
What are the types of temporary differences?
taxable and deductible
What are temporary differences?
The differences between the carrying amount of an asset in the SOFP and the tax base of the asset
Is depreciations tax allowable?
No it is not tax allowance
(addback depreciation)
What happens if there are different rates for capital allowances?
There will be a difference between accounting profits and taxable profits
How do we account for deferred tax?
A charge is made for deferred tax in the profit or loss and a provision is created in the SOPF
Why account for deferred tax?
- shareholders may be misled
- satisfies the accruals concept
- over-statement of profit can lead to over-optimistic dividends.
- EPS used in the P/E ratio and thus can have an impact on share price.
- Profit after tax, used to calculate EPS, may bear little resemblance to the pre-tax profit. With the tax charge fluctuating, the EPS will fluctuate also.
What do taxable temporary differences give rise to?
Deferred tax laibilities
what is one of the most common types of taxable temporary differences
accelerated depreciation for tax purposes because depreciation tends to be a higher rate in the earlier years of the asset’s life than the accounting depreciation charge.
Give one example of a deductivle temporary difference
A tax loss
What is note 1 regarding to deferred taxes
it is an accounting device. it does not represent the tax payable to the tax authorities. It is the tax attributable to temporary differences.
What is note 2 regarding deferred tax?
Deferred tax only arises because of “temporary differences”.
Are deferred tax assets and liabilities relating to goodwill recognised?
No
