IAS 12

Question 1

What is the concept behind IAS 12 taxation?

Answer 1

-company is a separate legal entity so they have to pay tax
-FS need to reflect the effects of tax
-tax rules effect cash flow.
-revenue must be matched with tax
-liability shud be recognised when it arises not when paid

Question 2

define accounting profit and taxable profit.

Answer 2

accounting profit is the profit for an accounting period before deducting tax.

taxable profit is the profit for a period , determined by tax rules, upon which income tax is payable (recoverable)

Question 3

what is current tax?

Answer 3

amount payable (or recoverable) to tax authorities for a period.

Question 4

what are deferred tax assets and liabilties?

Answer 4

-deferred tax liability: amount payable in future due to taxable temporary differences

-deferred tax asset: amount recoverable in future due to:
1) deductible temporary differences
2) unused tax loss carried forward
3) unused tax credit carried forward

Question 5

example of temporary differences?

Answer 5

1- dividend income
1- warranty provision
-inventory damage
-ias 38 capitalised development cost
-tax accelarated depreciation
-issue cost of loan notes
-convertible loan notes
-ias 19
-ifrs 2
-leasing ifrs 16

Question 6

eg. of permanent differences

Answer 6

abhi nahi aur kabhi nahi

-govt grants
-political donations
-fines/penalties
-goodwill in consolidation, as tax ppl treat parent investment in sub as investment in shares

Question 7

what is the classification of current tax for current and prior periods?

Answer 7

it is recognised as a liability till it is unpaid.
if more is paid than is due, it is classified as an asset.
anything that can be recovered from previous period is also recognised as an asset.

Question 8

what is the double entry for tax expense at year end?

Answer 8

PnL debit
Tax liability credit

amount will be management’s estimate.
tax authority may disagree with management’s computation.
the differences between estimated and actual tax will be recognized in PnL.
-UNDER PROVISION will be an additional expense, add it to next year’s tax estimate (debit in PnL)
-overprovision will be an expense write back (Credit in PnL)

Question 9

why is there a difference between taxable profit and accounting profit?

Answer 9

because tax rules are different from IFRS ccounting standards

Question 10

dividend income

Answer 10

tax ppl say we will charge tax when its actually received

Question 11

warranty

Answer 11

tax ppl say we will give back tax when warranty is used I

Question 12

Inventory damage

Answer 12

we will book loss immediately if impaired, but tax dept will consider loss when we actually sell asset

Question 13

capitalised development cost

Answer 13

we book it as asset now and ammortise in future. but tax dept allows full development cost now. (timing difference)

Question 14

what is tax accelerated depreciation

Answer 14

sometimes tax dept allows to book full depreciation now

Question 15

issue cost

Answer 15

in accounting: issue cost is spread over life of loan
tax dept allows full issue cost now

Question 16

two types of temporary differences

Answer 16

1) taxable temp difference: because of which future tax profit increases. eg. dividend
taxable TD is multiplied with tax rate to calculate DTL

2) deductible temp difference:
because of which future tax profit decreases, eg. provisions
multiply with tax rate to calculate DTA.