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According to IAS 12, under what condition is a deferred tax asset arising from a deductible temporary difference recognized?
According to IAS 12, under what condition is a deferred tax asset arising from a deductible temporary difference recognized?
What is generally accepted meaning of 'probable' according to IAS 37, which can be used to assist in understanding IAS 12?
What is generally accepted meaning of 'probable' according to IAS 37, which can be used to assist in understanding IAS 12?
What is the primary source of taxable profit, according to paragraph 28 of IAS 12?
What is the primary source of taxable profit, according to paragraph 28 of IAS 12?
According to IAS 12, what are 'tax planning opportunities'?
According to IAS 12, what are 'tax planning opportunities'?
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Which of the following factors does HIJ Investments PLC use to determine the probability of future utilization of deductible temporary differences, as of December 31, 20X1?
Which of the following factors does HIJ Investments PLC use to determine the probability of future utilization of deductible temporary differences, as of December 31, 20X1?
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What should HIJ Investments PLC consider when determining whether there are sufficient taxable temporary differences?
What should HIJ Investments PLC consider when determining whether there are sufficient taxable temporary differences?
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Under what circumstance can an entity create taxable profit according to IAS 12?
Under what circumstance can an entity create taxable profit according to IAS 12?
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What is the treatment for an entity with a history of tax losses discussed in?
What is the treatment for an entity with a history of tax losses discussed in?
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A deductible temporary difference can be used against the resulting taxable profit when...
A deductible temporary difference can be used against the resulting taxable profit when...
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What is NOT directly mentioned in the text as a method to improve the reliability of professional judgement by preparers?
What is NOT directly mentioned in the text as a method to improve the reliability of professional judgement by preparers?
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In 20X1, an entity identifies a taxable temporary difference of $100,000, expected to reverse in future years. What is the remaining taxable temporary difference at the end of 20X2?
In 20X1, an entity identifies a taxable temporary difference of $100,000, expected to reverse in future years. What is the remaining taxable temporary difference at the end of 20X2?
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According to IAS 12, under what condition should a deferred tax asset be recognized?
According to IAS 12, under what condition should a deferred tax asset be recognized?
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An entity has a deductible temporary difference of $60,000 and a tax rate of 30%. What is the deferred tax asset?
An entity has a deductible temporary difference of $60,000 and a tax rate of 30%. What is the deferred tax asset?
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In 20X3, an entity expects to reverse a taxable temporary difference of $55,000. Assuming a tax rate of 30%, what is the related deferred tax liability?
In 20X3, an entity expects to reverse a taxable temporary difference of $55,000. Assuming a tax rate of 30%, what is the related deferred tax liability?
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What is the primary factor to consider when determining whether to recognize a deferred tax asset?
What is the primary factor to consider when determining whether to recognize a deferred tax asset?
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If an entity has both deductible and taxable temporary differences, how are they generally presented?
If an entity has both deductible and taxable temporary differences, how are they generally presented?
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For the year ended 31 December 20X1, an entity's taxable profit was $nil. What impact does this have on the recognition of a deferred tax asset?
For the year ended 31 December 20X1, an entity's taxable profit was $nil. What impact does this have on the recognition of a deferred tax asset?
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When determining the probability of future taxable profits, what should an entity consider?
When determining the probability of future taxable profits, what should an entity consider?
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What is the purpose of recognizing deferred tax assets and liabilities?
What is the purpose of recognizing deferred tax assets and liabilities?
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How does the reversal of temporary differences affect an entity's taxable income?
How does the reversal of temporary differences affect an entity's taxable income?
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According to IAS 12, how does the standard treat the recognition of deferred tax liabilities or assets arising from the initial recognition of an asset or liability in a non-business combination transaction?
According to IAS 12, how does the standard treat the recognition of deferred tax liabilities or assets arising from the initial recognition of an asset or liability in a non-business combination transaction?
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In a jurisdiction where reductions in the carrying amount of goodwill are not deductible for tax purposes, and the cost of goodwill is not deductible when a subsidiary disposes of its business, what is the typical tax base of goodwill?
In a jurisdiction where reductions in the carrying amount of goodwill are not deductible for tax purposes, and the cost of goodwill is not deductible when a subsidiary disposes of its business, what is the typical tax base of goodwill?
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Why does IAS 12 not permit the recognition of a deferred tax liability resulting from the difference between the carrying amount of goodwill and its tax base?
Why does IAS 12 not permit the recognition of a deferred tax liability resulting from the difference between the carrying amount of goodwill and its tax base?
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An entity purchases machinery for $100, but the maximum tax deduction allowed is $60. How is this transaction recorded according to IAS 12, paragraph 15(b)?
An entity purchases machinery for $100, but the maximum tax deduction allowed is $60. How is this transaction recorded according to IAS 12, paragraph 15(b)?
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Under what condition should a deferred tax asset be recognized for deductible temporary differences?
Under what condition should a deferred tax asset be recognized for deductible temporary differences?
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What is a key consideration when applying the recognition criteria to deferred tax assets arising from deductible temporary differences?
What is a key consideration when applying the recognition criteria to deferred tax assets arising from deductible temporary differences?
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In which of the following situations would deferred tax assets typically not be recognized?
In which of the following situations would deferred tax assets typically not be recognized?
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An entity purchases an asset for $1,000. For tax purposes, the asset has a tax base of $1,200 on initial recognition. How does IAS 12 address this situation?
An entity purchases an asset for $1,000. For tax purposes, the asset has a tax base of $1,200 on initial recognition. How does IAS 12 address this situation?
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According to IAS 12, for which of the following taxable temporary differences is a deferred tax liability generally recognized?
According to IAS 12, for which of the following taxable temporary differences is a deferred tax liability generally recognized?
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An entity has unused tax losses. Under what condition should a deferred tax asset be recognized for the carryforward of these losses?
An entity has unused tax losses. Under what condition should a deferred tax asset be recognized for the carryforward of these losses?
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Under IAS 12, in which scenario is the recognition of a deferred tax liability specifically prohibited?
Under IAS 12, in which scenario is the recognition of a deferred tax liability specifically prohibited?
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Which condition must be met for the exception regarding the initial recognition of an asset or liability to apply, such that no deferred tax liability is recognized?
Which condition must be met for the exception regarding the initial recognition of an asset or liability to apply, such that no deferred tax liability is recognized?
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What potential impact could result from adjustments made to financial statements, in the absence of the exemption contained in paragraph 15(b)?
What potential impact could result from adjustments made to financial statements, in the absence of the exemption contained in paragraph 15(b)?
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In the context of deferred tax liabilities, what is the primary accounting standard that governs the recognition and measurement of goodwill arising from a business combination?
In the context of deferred tax liabilities, what is the primary accounting standard that governs the recognition and measurement of goodwill arising from a business combination?
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An entity recognizes an asset. According to IAS 12, under which of the following scenarios would the initial recognition of this asset lead to the recognition of a deferred tax liability?
An entity recognizes an asset. According to IAS 12, under which of the following scenarios would the initial recognition of this asset lead to the recognition of a deferred tax liability?
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According to IAS 12, what is a critical factor in determining whether to recognize a deferred tax liability related to the initial recognition of an asset or liability?
According to IAS 12, what is a critical factor in determining whether to recognize a deferred tax liability related to the initial recognition of an asset or liability?
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When should a deferred tax liability related to taxable temporary differences associated with investments in subsidiaries, branches, and associates be recognized?
When should a deferred tax liability related to taxable temporary differences associated with investments in subsidiaries, branches, and associates be recognized?
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Which scenario exemplifies a situation where a deferred tax liability would not be recognized due to exceptions defined in IAS 12?
Which scenario exemplifies a situation where a deferred tax liability would not be recognized due to exceptions defined in IAS 12?
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An entity acquires a subsidiary. During consolidation, the fair value of the subsidiary's equipment exceeds its tax base, creating a taxable temporary difference of $100,000. Simultaneously, goodwill is recorded at $50,000 due to the business combination. How does IAS 12 guide the accounting treatment for the deferred tax implications?
An entity acquires a subsidiary. During consolidation, the fair value of the subsidiary's equipment exceeds its tax base, creating a taxable temporary difference of $100,000. Simultaneously, goodwill is recorded at $50,000 due to the business combination. How does IAS 12 guide the accounting treatment for the deferred tax implications?
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Entity A is considering a transaction that involves the initial recognition of a new asset. According to IAS12, which conditions would permit Entity A not to recognize a deferred tax liability?
Entity A is considering a transaction that involves the initial recognition of a new asset. According to IAS12, which conditions would permit Entity A not to recognize a deferred tax liability?
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Flashcards
Deferred Tax Assets
Deferred Tax Assets
Tax benefits expected from future deductions or losses.
Deferred Tax Liabilities
Deferred Tax Liabilities
Tax obligations due in future due to temporary differences.
TAS 12
TAS 12
Standard that outlines deferred tax recognition rules.
Exceptions to Recognition
Exceptions to Recognition
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Goodwill Recognition
Goodwill Recognition
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Taxable Temporary Differences
Taxable Temporary Differences
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Initial Recognition Exceptions
Initial Recognition Exceptions
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Unused Tax Losses
Unused Tax Losses
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Investments and Deferred Taxes
Investments and Deferred Taxes
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Measurement of Deferred Taxes
Measurement of Deferred Taxes
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Goodwill tax treatment
Goodwill tax treatment
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IAS 12 paragraph 21
IAS 12 paragraph 21
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Initial recognition of assets
Initial recognition of assets
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Recognition exemption
Recognition exemption
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Accounting vs. taxable profit
Accounting vs. taxable profit
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Recognition rules for assets
Recognition rules for assets
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Deductible temporary differences
Deductible temporary differences
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Investment-associated tax assets
Investment-associated tax assets
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Deferred Tax Asset Recognition
Deferred Tax Asset Recognition
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Probable Criterion
Probable Criterion
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Artificial Intelligence in Tax
Artificial Intelligence in Tax
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Tax Planning Opportunities
Tax Planning Opportunities
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Future Taxable Profit
Future Taxable Profit
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Consistency in Judgement
Consistency in Judgement
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Reversal of Temporary Differences
Reversal of Temporary Differences
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Reversal of Deferred Tax
Reversal of Deferred Tax
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Probable Taxable Profit
Probable Taxable Profit
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IAS 12 Requirements
IAS 12 Requirements
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Future Reporting Periods
Future Reporting Periods
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Taxable Profit for 20X1
Taxable Profit for 20X1
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Reversal Amounts for 20X2 and 20X3
Reversal Amounts for 20X2 and 20X3
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$60,000 x 30%
$60,000 x 30%
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Study Notes
Deferred Tax Recognition - Part B
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Recognition of Deferred Tax Liabilities: Deferred tax liabilities are recognized for all taxable temporary differences, except in specific situations.
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Exceptions for Deferred Tax Liabilities: No recognition needed when a liability stems from:
- The initial recognition of goodwill.
- Initial recognition of an asset/liability in a non-business combination transaction, doesn't affect accounting/tax profit initially, and doesn't create equal taxable/deductible temporary differences.
- Taxable temporary differences related to investments in subsidiaries, branches, associates, and joint ventures are recognized as per IAS 12, paragraph 39.
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Goodwill (Business Combinations): Goodwill arising from mergers is recognized and measured per IFRS 3. Goodwill's tax base is often zero in some jurisdictions; hence, no deferred tax liability is recognized to avoid increasing the carrying amount of goodwill.
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Other Assets/Liabilities (Non-Business Combinations): If a transaction isn't a merger, doesn't affect profit initially, and doesn't create equal temporary differences, no deferred tax liability/asset should be recognized. This maintains transparency in financial statements.
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Subsequent Changes: An entity is prohibited from recognizing subsequent changes in unrecognised deferred tax liabilities/assets.
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Example (Machinery): Purchasing machinery for 100withtaxdeductionslimitedto100 with tax deductions limited to 100withtaxdeductionslimitedto60 leads to no recognized deferred tax liability because of the exemption under IAS 12, paragraph 15(b).
Deferred Tax Assets
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Recognition of Deferred Tax Assets: Deferred tax assets arise from deductible temporary differences and unused tax losses/credits, to the extent it is probable that future taxable income will exist to utilize these differences.
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Deductible Temporary Differences: Deferred tax assets are recognized for all deductible temporary differences. The recognition depends on the probability of future taxable profit.
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Exceptions for Deferred Tax Assets (Deductible Differences): No recognition of deferred tax assets is needed when:
- The deductible temporary difference stems from transactions not classified as business combinations.
- The transaction does not primarily affect accounting or tax profit in the initial period.
- The transaction doesn't yield equal taxable and deductible temporary differences.
- Deductible temporary differences associated with investments in subsidiaries, branches, associates, and joint ventures are recognized per paragraph 44 (IAS 12).
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Example (Asset Purchase): An asset with a cost of 1000mayhaveataxbaseof1000 may have a tax base of 1000mayhaveataxbaseof1200. No deferred tax asset is recognized under IAS 12, para 24.
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Probability Criterion: Deferred tax assets are recognized only if it's probable that future economic benefits will flow to the entity. This depends on the likelihood of future taxable profit.
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Definition of "Probable": Probable means "more likely than not", meaning the likelihood of the event (future taxable profit) is greater than not occurring.
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Professional Judgement: Judgment is needed in applying the "probable" criterion, potentially aided by AI, like deep learning software to predict tax implications of future transactions.
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Utilizing Taxable Profit: A key source of taxable profit is the reversal of taxable temporary differences, letting deductible differences be applied. Insufficient taxable profit or the ability to create further taxable profit (e.g., through tax planning) are additional factors affecting deferred tax asset recognition. Insufficient available taxable temporary differences and the ability to generate additional taxable profits or tax planning opportunities, are supplementary conditions for potential asset recognition.
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Description
Explore the principles of deferred tax liabilities and the exceptions that apply under IFRS regulations. This quiz delves into the recognition of deferred taxes, particularly in business combinations and their implications on goodwill. Enhance your understanding of taxable temporary differences and their treatment according to accounting standards.
