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    Pas 12 Income Taxes

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    R.A.
    PAS 12 prescribes the accounting for income taxes. It distinguishes between permanent and temporary differences that arise from differing treatments of economic activities between accounting standards and tax laws. Temporary differences result in deferred tax liabilities or assets, depending on whether they are taxable or deductible. Deferred tax is recognized for all temporary differences at the expected future tax rate and is not discounted. Income tax expense comprises current tax and the change in deferred tax assets or liabilities during the period.

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    Pas 12 Income Taxes

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    R.A.
    53 views3 pages
    PAS 12 prescribes the accounting for income taxes. It distinguishes between permanent and temporary differences that arise from differing treatments of economic activities between accounting standards and tax laws. Temporary differences result in deferred tax liabilities or assets, depending on whether they are taxable or deductible. Deferred tax is recognized for all temporary differences at the expected future tax rate and is not discounted. Income tax expense comprises current tax and the change in deferred tax assets or liabilities during the period.

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    PAS 12 INCOME TAXES

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    PAS 12 prescribes the accounting for income taxes. It distinguishes between permanent and temporary differences that arise from differing treatments of economic activities between accounting standards and tax laws. Temporary differences result in deferred tax liabilities or assets, depending on whether they are taxable or deductible. Deferred tax is recognized for all temporary differences at the expected future tax rate and is not discounted. Income tax expense comprises current tax and the change in deferred tax assets or liabilities during the period.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    53 views3 pages

    Pas 12 Income Taxes

    Uploaded by

    R.A.
    PAS 12 prescribes the accounting for income taxes. It distinguishes between permanent and temporary differences that arise from differing treatments of economic activities between accounting standards and tax laws. Temporary differences result in deferred tax liabilities or assets, depending on whether they are taxable or deductible. Deferred tax is recognized for all temporary differences at the expected future tax rate and is not discounted. Income tax expense comprises current tax and the change in deferred tax assets or liabilities during the period.

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    © All Rights Reserved
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    PAS 12 INCOME TAXES

    I. NATURE
    PAS 12 prescribes the accounting for the income tax
    The varying treatments of economic activities between the PFRSs and tax laws result to
    permanent and temporary differences.
    Permanent differences are those that do not have future tax consequences.
    Temporary differences are either taxable temporary differences or deductible temporary
    differences.
    Taxable temporary differences arise, for example, when financial income is greater than
    taxable income or the carrying amount of an asset is greater than its tax base.
    Deductible temporary differences arise in case of the opposites of the foregoing.
    Taxable temporary differences result to deferred tax liabilities while deductible
    temporary differences result to deferred tax assets.
    If the increase in deferred tax liability exceeds the increase in deferred tax assets,
    difference is deferred tax expense. If it is the opposite, the difference is deferred tax
    income or benefit.
    Income tax expense (benefit) is computed using PFRSs. It comprises current tax
    expense and deferred tax expense (income or benefit).
    Current tax expense is computed using tax laws.
    II. RECOGNITION
    And entity shall, with certain limited exceptions, recognize a deferred tax liability (asset)
    whenever recovery or settlement of the carrying amount of an asset or liability would
    make future tax payments larger (smaller) than they would be if such recovery or
    settlement were to have no tax consequences.
     Deferred tax liability is recognized for all taxable temporary differences, except
    those that arise from the following:
    o Initial recognition of goodwill
    o Initial recognition of an asset or liability in a transaction which is not a
    business combination and, at the time of the transaction, affects neither
    accounting profit nor taxable profit (tax loss).
    o Investment in subsidiaries, branches, and associates, and interests in joint
    arrangements to the extent that the entity is able to control the timing of
    the reversal of the differences and it is probable that the reversal will not
    occur in the foreseeable future.
     Deferred tax asset is recognized for allp deductible temporary differences,
    including unused tax losses and unused tax credits, to the extent that it is
    probable that taxable profit will be available against which the deductible
    temporary difference can be utilized, unless the deferred tax asset arises from
    the initial recognition of an asset or liability in transaction that is not a business
    combination and, at the time of the transaction affects either accounting profit nor
    taxable profit (tax loss).

    III. MEASUREMENT
    Deferred tax assets and liabilities are measured at the tax rates that are expected to
    apply to the period of their reversal, based on tax rates that have been substantively
    enacted by the end of the reporting period.
    PAS 12 prohibits the discounting of deferred tax assets and liabilities.
    IV. TRANSACTION
    Permanent Differences
    a. Interest income on government bonds and treasury bills
    b. Interest income on bank deposits
    c. Dividend income
    d. Fines, surcharges, and penalties arising from violation of the law
    e. Life insurance premium on employees where the entity is the irrevocable
    beneficiary.
    Taxable Temporary Differences
    a. Revenue is recognized in full under financial reporting but is taxable only when
    collected.
    b. A prepayment is capitalized and amortized to expense under financial reporting
    but is tax deductible in full upon payment.
    c. An asset is revalued upward and no equivalent adjustment is made for tax
    purposes.
    d. Depreciation recognized under financial reporting is lower than the depreciation
    recognized for taxation purposes.
    Deductible temporary differences
    a. Rent received in advance is treated as unearned income (liability) under financial
    reporting but is taxable in full upon receipt of cash.
    b. Bad debts expense is recognized for financial reporting when the collectability of
    accounts receivable becomes doubtful while it is tax deductible only when the
    accounts receivable is deemed worthless.
    c. Warranty obligation is recognized as expense when a product is sold under
    financial reporting but is tax deductible only when actually paid.
    d. Depreciation recognized under financial reporting is higher than the depreciation
    recognized for taxation purposes.
    e. Losses and tax credits that can be carried forward and deducted from future
    taxable profits.

    V. PRESENTATION
    a. Presentation in the Statement of Financial Position
    Deferred tax assets and deferred tax liabilities are presented separately as noncurrent
    assets and noncurrent liabilities, respectively.
    b. Presentation in Statement of Comprehensive Income
    Tax consequences are accounted for in the same way as related transactions or events.
    Current and deferred taxes are usually recognized in profit or loss.

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