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Pas 12

This document discusses the differences between accounting income and taxable income. It defines accounting income as the profit or loss before deducting tax expenses, while taxable income is the profit determined according to tax rules. It describes permanent differences as items included in one computation but not the other, resulting in final taxes. Temporary differences arise when the carrying amount and tax base of an asset or liability differ, resulting in deferred tax assets or liabilities. It provides examples of permanent and temporary differences and notes the accounting treatment of deferred tax assets and liabilities according to PAS 12.

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157 views10 pages

Pas 12

This document discusses the differences between accounting income and taxable income. It defines accounting income as the profit or loss before deducting tax expenses, while taxable income is the profit determined according to tax rules. It describes permanent differences as items included in one computation but not the other, resulting in final taxes. Temporary differences arise when the carrying amount and tax base of an asset or liability differ, resulting in deferred tax assets or liabilities. It provides examples of permanent and temporary differences and notes the accounting treatment of deferred tax assets and liabilities according to PAS 12.

Uploaded by

mogweidavid01
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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INTERMEDIATE ACCTG 2 (by:

MILLAN)
INTERMEDIATE ACCTG 2 (by:
MILLAN)
P
E Accounting Income xx
R
M Add: non-deductible expense xx
A
N
E
Less: non-taxable revenue (xx)
N
T Accounting Income subject to tax xx

T Add: Deductible Temporary Difference xx


E
M Less: Taxable Temporary Difference (xx)
P
O Taxable Income xx
R
A x Tax rate 20%
R
Y Current tax expense xx
INTERMEDIATE ACCTG 2 (by:
MILLAN)
ACCOUNTING INCOME VS. TAXABLE INCOME

Accounting Income = profit or loss for a period before


deducting tax expenses

Taxable Income = profit for a period, determined in


accordance with the rules established by the taxing
authority.
PERMANENT DIFFERENCES
• Arises when income and expenses enter in the computation of
either accounting profit or taxable profit but not both.
• Already been subject to final taxes (passive income)
• Excluded in preparing the income tax return.
• Not part of taxable income
• Examples:
1. Interest income from bank deposits
2. Dividend Income
3. Fines, surcharges, and penalties from violation of law
4. Life insurance premiums on employees where the
entity is the irrevocable beneficiary
TEMPORARY DIFFERENCES
• Differences between the carrying amount of an asset or liability
and its tax base
• Taxable T.D. – results to future taxable amounts
• Gives rise to deferred tax liabilities
• Accounting Income > Taxable Income
• Carrying Amount of Asset > Tax Base
• Carrying Amount of Liabilities < Tax Base
• Deductible T.D. – result to future deductible amounts
• Gives rise to deferred tax assets
• Accounting Income < Taxable Income
• Carrying Amount of Asset < Tax Base
• Carrying Amount of Liabilities > Tax Base
• Includes Timing Differences.
Notes:
• Use current tax rate for current tax expense
• Use future tax rate for deferred tax expense
• Deferred tax asset (DTA) and deferred tax liability (DTL)
shall not be offset (same is true with current tax asset and
current tax liability)
• “Reversal in another period” is ignored
• Deferred tax expense
= deferred tax asset – deferred tax liability
• Total Income tax expense
= deferred tax expense + current tax expense
Notes:
• PAS 12 requires the use of the asset-liability method (also,
Balance Sheet Liability method) in accounting for deferred
taxes.
• A deferred tax asset is recognized only to the extent that it
is realizable. When it is more likely than not that a DTA will
not be realized, the DTA is reduced to its realizable value.
• Unused tax losses and unused tax credits that can be
carried over to the next period may be recognized as DTA
Notes:
• When DTA reverses, income tax payable is reduced.
• When DTL reverses, income tax payable is increased.
• The reversals affect only the current tax expense (also,
income tax payable) but not affect income tax expense.
• DTA and DTL are not discounted
INTERMEDIATE ACCTG 2 (by:
MILLAN)

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