IAS 12

tax

current tax
> Current tax – the amount payable to the tax authorities in relation to the
trading activities of the current period

1st yr tax will pay in 2nd yr

1st yr tax
DR tax
Cr tax liabilites

2nd yr
Dr current tax liabilities
Dr tax expense ( under provision )
Cr cash

tax expense
current tax
under/ over provision
total fi

defferd tax
> Deferred tax – an accounting measure used to match the tax effects of
transactions with their accounting treatmen
> accruals concept.

CY current tax estimate

under / over provision
movt in defferd tax
tax expense
a ) no defferd tax

accounting profit
add back depn
less capital allowance

current tax 30%

in the statement of profit and loss

profit before tax
less current tax
profit after tax

defferd tax

carry value of the asset

defferd tax

accointing profif t
current tax
defferd tax

asset cv > taxable benefits --> taxable temporary differne ---> defferd tax liability
tax should pay on taxable profit
to calculate the defferd tax liablity or asset based on temporary diffence ( diffrence between CV and tax b

1st yr start
1st yr depn / cap allowance
1st YE end and 2nd yr start
2st yr depn / cap allowance
2st YE end and 3nd yr start
3st yr depn / cap allowance
3st YE end and 4nd yr start
4st yr depn / cap allowance

asset
cv > TB DTL
CV < TB DTA

liability
CV > TB DTA
CV < TB DTL
1)
2)
3 ) the reivebles is recognized In taxable profit
4)

2) the tax only recird when int is received

 1000
1000

1000
200
1200

x
x/(x)
xx p/L

xxx dr
(x)/x
( x) /x
compute taxable profir
20x0 20x1 20x2 20x3
2000 2000 2000 2000 8000
400 400 400 400 1600
-1600
800 2400 2400 2400 8000
-240 -720 -720 -720

20x0 20x1 20x2 20x3

 2000 2000 2000 2000
-240 -720 -720 -720
1760 1280 1280 1280

1200 800 400 0

360 240 120 0
-360 -240 -120
360 -120 -120 -120

2000 2000 2000 2000

-240 -720 -720 -720
-360 240 120 0
1400 1520 1400 1280

CV and tax base ) multplyby tax rate

CV tax base Temporary differnce

1600 1600 0
-400 -1600
1200 0 1200 360
-400 0
800 0 800 240
-400 0
400 0 400 120
-400
0 0 0 0
CV TAXE BASE temporary dfrence
82000 70000 12000 DTL
1000 0 1000 DTL
10000 10000 0
4500 5000 500 DTA
1000 0 1000 DTA
5000 5000 0
11500 DTL
3450 DTL
revaluation situation

defferd tax shpuld be recognize in PPE even I f

> there is no intention to sell

the deffed tax ariseing the revalutation must be recorded in OCI

the the carry value is after the revaluation is 90000 and the tax base is the 50000
( 100000-50000) the temporary diffefnce betweent he crry value and the tax base is the
40000 and the deffed tax liability will be 12000 ( 40000*12%) the revaluation gain should
be recoreded on OCI and alsoe the defferd tax tax arising the revaluation gaon also
recorded on OCI so that the the revaluation gain on 30000 ( 90000-60000) will be
recoeded on the OCU and the defferd tax of revaluton gain 30000*30% 9000 will be
recoede nn oCI

Dr OCI
DR P/L
CR deffed tax

Unused tax losses

 > the entity unused tax loss acordacen with IAS 12 the could be recognized in asset to
be recognized only s probable that future taxable profits will be
available against which the unused tax losses can be utilised

> deferred tax asset should only be recognised after

considering:
- whether an entity has sufficient taxable temporary differences against
which the unused tax losses can be offse
- whether it is probable the entity will make taxable profits before the tax
losses expire
- whether tax planning opportunities are available

the acccordance with the IAS 12 incoem the entitry unsed tax couldbe recognized in
asset only the probale of fhe entitty will achive fufute taxabale profit to seet off the tax
loss
in this senerio indicaete Red has produced forecasts that predict total future taxable profits
over
the next three years of $2.5 million so that they seet off e tax adjusted tac loss upto 2.5m
not fully recoved

measuremeent
> AS 12 specifies that this rate must be based on
legislation enacted or substantively enacted by the reporting date ( tax diifrence taken
> Deferred tax assets and liabilities are not discounted to present value
 60 90
50 50
3 12 9
DR PL CR DF DR OCI

60000
50000 10000 3000 Dr P?L

90000 50000 12000 Cr de

9000 DR OCI

CV ta base temporry differnce

100000 100000 0
-40000 -50000
60000 50000 10000 DTL

90000 50000 40000

12000

9000
3000
12000
Business combinations and deferred tax

Fair value adjustments

> the identifiable asset and liabilties of subisdery are consolidated but the tax base
Is e tax base derives from the values in the subsidiary's
individual financial statements.
> temporary difference is created, and so
deferred tax must be recognised in the consolidated financial statements.
> The deferred tax recognised is treated as part of the net assets of the
subsidiary
at the acquisition date and, as a result, affects the amount of goodwill
recognised.
Provisions for unrealised profit

Unrealised Profits: When one group company sells inventory to another,

any unrealised profits at the reporting date must be eliminated.
1. Accounting Adjustment:
Dr Cost of Sales (SPL)
Cr Inventory (SFP)
2. Impact on Inventory: The carrying amount of inventory is reduced in the
consolidated financial statements.
3. Tax Base: The tax base remains at the original cost in the purchasing
company's individual financial statements.
4. Deferred Tax Asset: This creates a deductible temporary difference,
leading to the recognition of a deferred tax asset in the consolidated
financial statements
 when only the one quoter of the rhis emians unosold this could be arise the
unrelaised priofti between them this reduce the inventory value and bu the
tax bse the orgincal cost of the inventory remains unchanege this could be
efffect temporary difference between them
in the glosss only sod 3/4 quarter of the inventory the 1/4 quaoter remoins
unsold so the unreliased profit will be 25000 ( 250000*40/100*1/4) this woule
reduce the inventory 225000 ( 250000-25000)

unremitted earnings

parent to associate

cost
PARE 30%
dividend

in the consolidated fs profit from earnings 3000 by the CONSOLIDATED

shown on dividend paid thses diffrence between the single entity and
consolidated is 1200 knowm as unremiited earnings

`1
Definition: Unremitted earnings refer to undistributed profits in subsidiaries,
associates, or joint ventures, leading to a temporary difference between the
carrying amount and the tax base.

Carrying Amount vs. Tax Base:

The carrying amount includes the investor’s share of the investee’s net assets
plus goodwill.
The tax base is usually the cost of the investment.
The difference between these is unremitted earnings.

IAS 12 Deferred Tax Recognition: Deferred tax should be recognized

unless:

The investor controls the timing of the reversal of the temporary difference.

It is probable that profits will not be distributed in the foreseeable future.

Investor Control:

Investors control dividend policy in subsidiaries → No deferred tax.

Investors may not control dividend policy in associates/joint ventures →
Deferred tax may arise.

Financial Assets:

If financial assets are remeasured to fair value, they may create deferred tax
implications.
but the tax base
250000

25000

*1/4
25000

225000 20
 5000
3000
-1800
6200
through share option scheme cooru DTA
as th normal method tax on temporary diffrence in share options scheme not apply SBP
The amount of tax relief granted is based on the intrinsic value of the options (the
difference between the market price of the shares and the exercise price of the
option).

the eddferd on share optioj schemes tax relief are not normally granted in the vesting period
the amount of the tax relief will be based on the intrisic value
in in case the tax relief wil be 300000 ( 25000*4 *1/4*(17-5) ) so he defferd tax
would be 90000 ( 300000*30%)
ff the acumulated rumeratiojn exceeds the tax dudection so the tax retale to exceeds of tax r
will be partially in equity vaaue

n this case the rumeration is the 250000 ( 250000*10 ) and the occure the taxable diffence
is 50000 the the defferd on ther difiercen is the 150000 ( 500000*30% )

Dr defferd tax
Cr equity
Cr P?L
e not apply SBP

n the vesting period

ale to exceeds of tax relief

he taxable diffence

90000
15000
75000
situation 1

accounting CV tax book

ROU 5000 ROU 5000

lease liabilty 5000 lease liabil 5000

situation 2
our book record but tax book not record tax rate 10%
accounting CV tax book

ROU 5000 ROU 0

lease liabilty 5000 lease liabil 0
accounting CV tax book

ROU 10000000 ROU 0

lease liabilty 10000000 lease liabil 0

Dr defferd tax
Cr defferd tax liability
TD

0
0

TD

5000 DTL 500

5000 500

the iFRS 16 recognizes the right of use of asset and the lease liability unless the s
some jurdctiiotn allows the tas relief o leased asser whwereas the some of the lea
TD

10000000 3000000
10000000 3000000

3000000
3000000
the lease liability unless the short term or minimal product
whwereas the some of the lease liabiity which icreate temporary taxable diffrence