Tax

Question 1

IAS12 - Income Tax - Accounting Profit and Taxable Profit - Current tax - Tax Allowance

Answer 1

The profit/loss for the period before deducting tax = PBT

Taxable Profit - P/L for the period determined in accordance with the rule by the tax authorities, upon which income taxes are payable.

Current Tax - The amount of income taxes payable in respect of the the taxable profit/tax loss - Normally an estimate by the company shown as a current liability
Dr Income expense (PL)
Cr Income tax liability (SFP)

Tax Allowances - Tax equivalent of an accounting item.

Question 2

Accounting Example

Answer 2

2007 estimate = 200
Pay 2007’s tax of 170
Over provision of 30
2008 estimate = 210

SPL = 180 (Current year 210 - 30 (b.fig) = 180)

Question 3

Deferred Tax

Answer 3

Amounts of income taxes payable in future periods. Set up a provision for tax in the future.

Accounting profit does not = Taxable profit.

Permanent Difference = Taxable profit - Accounting profit

Temporary Differences = Items used in calculating accounting and taxable profits but in different periods.

Question 4

Standard Tax working

Answer 4

Current Year Estimate x
Under/Over provision x /(x)
Increase/Decrease in Def. Tax x / (x)

Question 5

Deferred Tax

Answer 5

1. Calculate the temporary difference

Carry Amount - x
Tax base - (x)
Temporary Tax Dif. - X

2. Apply the tax rage to the temporary difference to find year end deferred tax liability.
3. Account for the movement in deferred tax in tax expense.