FAC 3701 Income taxes IAS 12 OVER VIEW

FAC 3701 Income taxes IAS 12

OVER VIEW • The objective of this statement is to prescribe the accounting treatment for the current & future tax consequences of: • the future recovery/(settlement) of the carrying amount of assets/(liabilities) that are recognised in an enterprise's statement of financial position, and • transactions and other events of the current period that are recognised in an entity's financial statements.

DEFERRED TAX Tax Base OF an asset a liability • asset or liability is the amount attributable to that asset or liability for tax purposes. • Amount will be deductible in future against any taxable economic benefits flowing into the entity when it recovers/settles the carrying amount of the asset. • carrying amount of the liability, less any amount, that will be deductible for tax purposes in respect of that liability in future.

Deferred TAX rules 1. CAA > TBA Deferred Tax Liability 3. CAA < TBA Rules Deferred Tax Asset 2. CAL < TBL 4. CAL > TBL • Dr Def Tax expense (SCI) • Cr Def Tax Liability – Provision Made for Def Tax expense Dr Def Tax Asset- SARS (SFP) Cr Def Tax (SCI) Provision Made for Def Tax.

IAS 12 Income Taxes Differences • LIABILITY • Payable in Future Due to • Taxable Temporary Differences (Temporary future Profits - from small amounts deductible in future) • • • ASSET Recoverable in Future Due to Deductible Temporary Differences Tax Credits Carried Forward Tax Losses Carried Forward

IAS 12 Income Taxes • Same Treatment of Objective Except – Underlying Transactions & Other Events – And Tax Consequences of Transactions & Other Events • for Transactions recognised In equity – thus Tax effects Recognised in equity

IAS 12 Income Taxes Financial Position Approach

Financial Position Approach • The balance sheet approach to deferred tax: Ø [CA – TB = temporary difference] x tax rate = D Tax • To Calculate Deferred Tax Draw up S F P Carry Amounts • Assets and Liabilities Then Calculate Deferred Tax On Closing amounts Tax Bases • Assets and Liabilities

Exempt Differences 1. Goodwill – With Un- Taxable Amortization 2. Initial Recognition • Asset / Liability 2. 2 Neither affects – Accounting or Taxable profit 2. 3 Transaction Not a business combination

IAS 12 Income Taxes RECOGNITION 1. Liability – Recognised for ALL – taxable - Temporary Differences 2. Asset – Recognised – Extent - Probable Taxable Profit – Available- Against which – Deductible- Temporary Differences - Can be utilised

ASSETs v/s Liabilities A S S E T 1. Resource 2. Controlled 3. Past event 4. Reliable measurement • Cost • Economic Benefits – Expected to flow INTO

ASSETs v/s Liabilities L I A B I L I T I E S 1. PRESENT OBLIGATION 2. PAST EVENT 3. RELIABLE MEASUREMENT – Economic Benefits – EXPECTED Flow OUT

IAS 12 Income Taxes Measurement of • Current Tax / Def tax liability / Def Tax Asset • @ Enacted Tax Rates • Change in Rate Para 47 – results in Adjustment of Opening balances of both Deferred Tax Assets or Liabilites

IAS 12 Income Taxes • Pa page 54 • Add one more year to the Example

IAS 12 Income Taxes