IAS 12 income tax

Question 1

what is current tax

Answer 1

tax paid for the current year. it will be paid next yr but andaza today.

Question 2

what is the accounting treatment for current tax?

Answer 2

-Tax expense in I/S debit
-Income tax payable in SOFP credit (CL)

this is an estimate of what will be paid or received.

taxable profit woh profit hai jispe tax walay current taxx lete hain

Question 3

how are under and over provisions of tax treated?

Answer 3

1) under provision, will be a debit on trial balance- expense it in PnL.
2) over-provision- credit on trial balance, show as income in PnL

Under over provision does NOT effect the year end tax liability. just adjust in income statement.

Question 4

what is deferred tax?

Answer 4

-estimated future tax that is related to events of the current and previous periods (matching principle)

deferred tax accounting ki dunya aur tax ki dunya k beech k farq ki wajah se arise hota hai (only temporary diff not permanent difference)

Question 5

what are temporary and permanent differences?

Answer 5

the value difference in company’s books and tax authority’s books.

eg. if there is an expense they can deduct for tax purpose, but not right now due to accrual concept (eg. rent for period not paid yet)
this is a temporary difference.
or different depreciation methods.

permanent difference is when an expense is disallowed in tax books, so tax expense increases.
or decreases (eg. govt grant is maaf) abhi nahi aur kabhi nahi.

Question 6

how is temporary difference calculated?

Answer 6

carrying amount less tax base.

Question 7

what is the accounting treatment of deferred tax?

Answer 7

-the movement in deferred tax during the yr will have to be accounted for

if deferred liability has increased:
Debit tax expense (OCI)
credit deferred tax (SOFP)- non current liability

if deferred liability has decreased:
debit deferred tax (sofp) NCL
credit tax expense (OCI)

Question 8

how is deferred tax treated when the temporary difference is non current asset revaluation?

Answer 8

this deferred tax will be taken to the revaluation surplus via OCI, NOT to PnL.

Question 9

standard working for calculating income tax?

Answer 9

year end estimate XXX
under/over provision XXX
inc/ dec in deferred XXX
tax
———
expense to PNL XXX

–
yr end estimate is given in Q
under over provision in trial balance
inc dec in deferred tax is calculated by you

Question 10

standard working for deffered tax?

Answer 10

deferred tax bal b/d X
deferred tax closing bal X

increase/ decrease in deferred tax to be taken to PnL or OCI.