Income tax Flashcards
What are the three components of the Income tax note?
Current tax. Deferred tax. Income tax recon.
What is deferred tax
Future tax consequences of transactions already recorded in the financial statements.
DT is always recognized as?
Non-current asset/liability
How to determine differences?
Step 1: Figure out how the transaction affected the accounting profit.
Step 2: Figure out how the transaction affects the taxable profit.
Step 3: Reverse the accounting treatment and replace with the tax treatment.
Effective tax rate
Effective tax rate =
(Tax expense)/”Profit before tax “ x 100
Tax rate recon.
TD of Income received in advance.
o/b is deducted (taxed in prior year)
c/b is added back (taxed in current year)
TD of accrued expenses
o/b is added back (taxed in prior year)
c/b is deducted (taxed in current year)
TD of provisions
o/b added back (not allowed in CY)
c/b deducted (allowed)
TD of provision for bad debt/ allowance for credit losses.
Remove accounting treatment in P/L
o/b add back (allowed in PY)
c/b deduct (allowed in CY)
Explain the different management intentions.
1) Sell: Applied to capital profits (22.4%)
2) Use: Profits other than capital profits.
Presumed intentions:
1) Non-depreciable assets measured under the revaluation model i.t.o. IAS 16: PPE & IAS 40: Investment Property.
2) Eg: Land.
Tax rate change disclosure:
Income tax expense note:
1) Shown as a separate line item under the deferred tax movements.
2) Rate change will be included in the tax rate reconciliation.
Determine the tax base of a liability.
Liability other than income received in advance:
TB= Carrying amount less Future tax deductions
Income received in advance:
TB= Carrying less amount that will not be taxed in the future.
