IAS 12: Accounting for Income Taxes

IAS 12 focuses on accounting for income taxes, considering both current and future tax consequences of transactions.

Tax consequences are recognized in the same way as the transaction itself, whether in profit or loss or other comprehensive income.

Deferred tax assets/liabilities are recognized to address the differences between tax and accounting rules. They represent the timing difference between the tax expense recognized and the income tax payable.

Temporary differences arise when the carrying amount of an asset or liability differs from its tax base. This means the tax rule and accounting rule treat the item differently.

Deferred tax assets are recognized if it's probable that future taxable profit will be available to utilize them. Basically, does the company expect to have taxable income in the future?

Deferred tax assets are calculated from temporary differences between the carrying amount and tax base of assets and liabilities. Basically, how much difference is there between these values?

Deferred income taxes are measured using the enacted or substantively enacted tax rates as of the end of the reporting period. The rates used must be those that are effective for the period.

Current income tax is recognized in profit or loss and is payable on the taxable profit at the applicable tax rate. This is the tax that's due in the current period.

Deferred income tax is calculated from the temporary differences between the carrying amount and the tax base of assets and liabilities. This is the tax that's due in the future.

Accounting profit is simply the profit before tax, calculated under the accounting rules. Taxable profit is adjusted based on the specific rules set by the tax authorities.

The recognition of deferred tax assets/liabilities is triggered by differences between tax rules and accounting rules. Companies must recognize the impact of these differences on their financials.

Deferred tax liabilities are recognized when the tax base of an asset or liability is less than the carrying amount. This means the company will pay more tax in the future.

Deferred tax assets are recognized when the tax base of an asset or liability is greater than the carrying amount. This means the company will pay less tax in the future.

IAS 12 prescribes accounting treatment for income taxes. Its goal is to ensure that companies accurately report their tax liabilities and the impact of taxes on their financial performance.