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Questions and Answers
A company has an accounting profit of $500,000. Expenses of $50,000 were recognized, but are non-deductible for tax purposes, and income of $30,000 was not recognized but is included under tax laws. What is the company's taxable income?
A company has an accounting profit of $500,000. Expenses of $50,000 were recognized, but are non-deductible for tax purposes, and income of $30,000 was not recognized but is included under tax laws. What is the company's taxable income?
- $530,000
- $580,000
- $520,000 (correct)
- $420,000
Which of the following is the primary objective of IAS 12?
Which of the following is the primary objective of IAS 12?
- To prescribe the accounting treatment for income taxes. (correct)
- To establish principles for the financial reporting of investments.
- To provide guidance on the recognition and measurement of provisions and contingencies.
- To outline the procedures for calculating taxable profit or loss.
A company's current tax expense is calculated based on which of the following?
A company's current tax expense is calculated based on which of the following?
- Taxable income or loss multiplied by the deferred tax rate.
- Accounting profit or loss multiplied by the current tax rate.
- Taxable income or loss multiplied by the current tax rate. (correct)
- Accounting profit or loss multiplied by the deferred tax rate.
What is a deferred tax asset?
What is a deferred tax asset?
Which of the following best describes a 'temporary difference' under IAS 12?
Which of the following best describes a 'temporary difference' under IAS 12?
When measuring deferred tax liabilities and assets, which tax rate should be used?
When measuring deferred tax liabilities and assets, which tax rate should be used?
Under what condition should a deferred tax asset be recognized?
Under what condition should a deferred tax asset be recognized?
If an item is recognized directly in other comprehensive income (OCI), how is the related deferred tax recognized?
If an item is recognized directly in other comprehensive income (OCI), how is the related deferred tax recognized?
A company revalues its property, plant, and equipment upwards. Where is the deferred tax arising from the revaluation recognized?
A company revalues its property, plant, and equipment upwards. Where is the deferred tax arising from the revaluation recognized?
Which of the following describes current tax, according to IAS 12?
Which of the following describes current tax, according to IAS 12?
A company has a taxable temporary difference of $100,000. The enacted tax rate is 25%. What is the deferred tax liability?
A company has a taxable temporary difference of $100,000. The enacted tax rate is 25%. What is the deferred tax liability?
What is the primary reason for accounting for deferred taxes?
What is the primary reason for accounting for deferred taxes?
Which of the following is an example of an item that might create a temporary difference?
Which of the following is an example of an item that might create a temporary difference?
What is the formula for calculating a temporary difference?
What is the formula for calculating a temporary difference?
Which of the following would least likely result in a deferred tax asset?
Which of the following would least likely result in a deferred tax asset?
Flashcards
Objective of IAS 12
Objective of IAS 12
Prescribes the accounting treatment for income taxes.
Accounting Profit / Loss
Accounting Profit / Loss
Profit or loss before deducting tax expense.
Taxable Income / Loss
Taxable Income / Loss
Profit or loss determined according to applicable tax rules.
Current Tax
Current Tax
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Deferred Tax
Deferred Tax
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Carrying Amount
Carrying Amount
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Tax Base
Tax Base
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Temporary Difference
Temporary Difference
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Taxable Temporary Difference
Taxable Temporary Difference
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Deductible Temporary Difference
Deductible Temporary Difference
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Deferred Tax Liability
Deferred Tax Liability
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Deferred Tax Asset
Deferred Tax Asset
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Measurement of Deferred Tax
Measurement of Deferred Tax
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Recognition of Deferred Tax Assets
Recognition of Deferred Tax Assets
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Examples for OCI / Equity
Examples for OCI / Equity
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Study Notes
- IAS 12 addresses the accounting treatment for income taxes.
Objective of IAS 12
- The objective of IAS 12 is to prescribe the accounting treatment for income taxes.
- Income taxes are payable or recoverable in relation to current period's taxable income or loss.
- Income taxes are payable or recoverable in relation to future periods.
Accounting Profit/Loss and Taxable Income/Loss
- Accounting Profit/Loss is the profit or loss for a period before deducting tax expense.
- Taxable Income/Loss is the profit or loss for a period determined by applicable tax rules.
- Expenses recognized which are non-deductible for tax purposes should be added to accounting profit/loss to arrive at taxable income/loss.
- Income not recognized, but included under tax laws should be added to accounting profit/loss to arrive at taxable income/loss.
- Expenses not recognized, but deductible for tax purposes should be deducted from accounting profit/loss to arrive at taxable income/loss.
- Income recognized, but not under tax laws should be deducted from accounting profit/loss to arrive at taxable income/loss.
Current Tax
- Current tax is the income tax payable or recoverable with respect to the current period's taxable profit or loss.
- Current Tax Expense is debited in the Profit/Loss statement and Provision for Tax is credited.
- It is calculated by multiplying Taxable Income/Loss by the Tax Rate (%).
Deferred Tax
- Deferred Tax includes income tax payable or recoverable in future periods related to temporary differences, unused tax losses, and unused tax credits.
- Deferred Tax is calculated by multiplying any temporary differences, unused tax losses, and unused tax credits by the Tax Rate (%).
Carrying Amount and Tax Base
- Carrying Amount is the amount attributed to an asset or liability as per IAS and IFRS.
- Tax Base is the amount attributed to an asset or liability for tax purposes.
Temporary Difference
- Temporary Difference is the Carrying Amount minus the Tax Base.
- A Taxable Temporary Difference occurs when the Carrying Amount is greater than the Tax Base for an asset or when the Carrying Amount is less than the Tax Base for a liability. This results in a Deferred Tax Liability.
- A Deductible Temporary Difference occurs when the Carrying Amount is less than the Tax Base for an asset or when the Carrying Amount is greater than the Tax Base for a liability. This results in a Deferred Tax Asset.
Deferred Tax Asset
- Deferred Tax Assets arise from Deductible Temporary Differences, Unused Tax Losses, and Unused Tax Credits.
Measurement of Deferred Tax
- Measurement should reflect the type of income and the manner in which the asset will be recovered, or the liability settled.
- Use enacted or substantively enacted rates and laws by the reporting date.
- Use the rate expected to apply when assets are realized or liabilities are settled.
- Deferred taxes are not discounted.
Recognition of Deferred Tax
- Deferred Tax Liabilities are recognized in full.
- Deferred Tax Assets are recognized to the extent that it is probable that future taxable profit will be available against which deductible temporary differences can be used.
- Deferred tax is recognized in the same place as the underlying transaction or events (i.e. item) to which it relates.
- Items recognized in profit or loss, will have the deferred tax recognized in profit or loss.
- Items recognized in Other Comprehensive Income(OCI) / equity, will have the deferred tax recognized in OCI / equity.
Recognition - Deferred Tax in OCI / Equity
- Fair valuation of a financial asset at FVOCI.
- Upward revaluation of property, plant & equipment.
- Correction of prior period errors.
- Retrospective adjustment of change in accounting policy.
Difference Between Current Tax and Deferred Tax
- Current Tax:
- Is the amount payable to tax authorities.
- Income taxes payable in respect of current period's taxable profit.
- Uses taxable profit/loss.
- Deferred Tax:
- Is an accounting measure to avoid mismatch.
- Income taxes payable/recoverable in respect of future periods.
- Includes Temporary Differences, Unused Tax losses, and Unused Tax Credits.
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