Income Taxes

Question 1

What is the relevant IFRS Standard for Income Taxes?

Answer 1

IAS12 Income Taxes

Question 2

Definition of Current Tax:

Answer 2

The amount of income taxes payable (recoverable) in respect of taxable profit (loss) for a period.

Question 3

What is Deferred Tax?

Answer 3

It is an accounting adjustment. It deals with situations in which the accounting treatment of a transaction is different from the tax treatment. Has to do with TEMPORARY differences.

Question 4

What are the temporary differences when it comes to deferred tax?

Answer 4

Differences between:
1.) Carrying amount of an asset/liability
2.) Tax base of an asset/liability
There are two types of differences:
1.) Taxable temporary differences (tax
allowances)
Result in deferred tax liability
2.) Deductible temporary differences (tax
losses)
Result in deferred tax asset

Question 5

Definition of Deferred tax liabilities:

Answer 5

Amounts of income taxes payable in future periods in respect of taxable temporary differences.

Question 6

Definition of Deferred tax assets:

Answer 6

Amounts of income taxes recoverable in future periods in respect of:
- deductible temporary differences
- carry forward of unused tax losses
- carry forward of unused tax credits

Question 7

Definition of Temporary differences:

Answer 7

Differences between carrying amount of an asset or liability in SOFP and its tax base.

Question 8

Definition of Taxable temporary differences:

Answer 8

Temporary differences that will result in taxable amounts in determining taxable profit(tax loss) of future periods when carrying amount of asset or liability is recovered or settled.

Question 9

Definition of Deductible temporary differences:

Answer 9

Temporary differences that will result in amounts that are deductible in determining taxable profit(loss) of future periods when carrying amount of asset or liability is recovered of settled.

Question 10

Definition of Tax Base:

Answer 10

Amount attributed to that asset or liability for tax purposes.

Question 11

How do we calculate deferred tax:

Answer 11

Carrying amount of asset(liability)SOFP X/(X)
Less tax base X/(X)
Temporary Difference = X/(X)

Deferred tax (liability)/asset (always opposite sign to temporary differences)
(tax rate % x temporary difference) X/(X)

Question 12

Accounting entry to increase/create a deferred tax liability:

Answer 12

Debit : Deferred tax expense
Credit : Deferred tax liability

Question 13

Accounting entry to reverse/decrease tax deferred liability:

Answer 13

Debit: Deferred tax liability
Credit: Deferred tax expense

Question 14

Accounting entry to increase/create a deferred tax asset:

Answer 14

Debit: Deferred tax asset
Credit: Deferred tax expense

Question 15

Accounting entry to reverse/decrease a deferred tax asset:

Answer 15

Debit: Deferred tax expense
Credit: Deferred tax asset

Question 16

Where do we recognise Deferred tax Expense?

Answer 16

Usually reported in SOPL.
However, it if relates to items outside of PL, should be reported in:
- Other comprehensive income (OCI)= deferred tax on revaluation gains on PPE
- Directly in equity