IAS 12 - Income Taxes

Question 1

Deferred tax: permanent differences:

Answer 1

These are items of income or expense for book purposes that are not recognised for tax purposes and that have no future tax consequences. They will never reverse over time.

The differences affect the tax payable, but do not give rise to deferred tax assets or liabilities.

Question 2

Deferred tax: temporary differences:

Answer 2

These are items of income or expense for book purposes that are allowed for tax purposes, but are recognised is a different accounting period.

Temporary differences are the source of deferred tax.

Question 3

How to calculate Deferred Tax:

Answer 3

Compare the carrying amount to the tax base of the asset or liability.

The tax base is the carrying amount according to the tax authority.

This is cost minus accumulated tax allowances.

Question 4

Types of Deferred Tax:

Answer 4

• Taxable temporary differences. Leads to a deferred tax liability.
• Deductivd temporary differences. Leads to a deferred tax asset.

Question 5

Revaluation and deferred tax:

Answer 5

Revaluation of non-current asset gives rise to income tax. However most tax authorities don’t require companies to pay tax over unrealised gains.

Question 6

How to record deferred income tax on revaluation of a non-current asset:

Answer 6

The Revaluation is recorded as:

Dr: Non-Current Asset (Market value -/- initial cost)
Cr: Other Comprehensive Income (Revaluation Surplus)

Deferred Tax logged as:
Dr: Other Comprehensive Income
Cr: Deferred tax liability