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Pas 12

This document discusses key concepts in PAS 12 related to accounting for income taxes. It defines income tax expense and current tax expense. It also distinguishes between permanent differences and temporary differences that affect accounting profit and taxable profit. The document summarizes that PAS 12 requires the use of the asset-liability method for accounting for deferred taxes. It notes that deferred tax assets and liabilities are measured based on tax rates substantively enacted by the end of the reporting period.

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Rogelio Paran
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280 views15 pages

Pas 12

This document discusses key concepts in PAS 12 related to accounting for income taxes. It defines income tax expense and current tax expense. It also distinguishes between permanent differences and temporary differences that affect accounting profit and taxable profit. The document summarizes that PAS 12 requires the use of the asset-liability method for accounting for deferred taxes. It notes that deferred tax assets and liabilities are measured based on tax rates substantively enacted by the end of the reporting period.

Uploaded by

Rogelio Paran
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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PAS 12: INCOME TAXES

Prof. Rogelio Paran, Jr.


ACCOUNTING PROFIT AND TAXABLE PROFIT
ACCOUNTING PROFIT AND TAXABLE PROFIT
INCOME TAX EXPENSE AND CURRENT TAX EXPENSE
➤ Tax expense or income tax expense (tax income) - is the total amount included in
the determination of pro t or loss for the period.
1. Current tax or current tax expense - is “the amount of income taxes payable
(recoverable) in respect of the taxable pro t (tax loss) for a period”.
2. Deferred tax expense (income or bene t) - is the sum of the net changes in
deferred tax assets and deferred tax liabilities during the period.
a. If the increase in deferred tax liability exceeds the increase in deferred tax
asset, the di erence is deferred tax expense.
b. If the increase in deferred tax asset exceeds the increase in deferred tax
liability, the di erence is deferred tax income or bene t.
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INCOME TAX EXPENSE AND CURRENT TAX EXPENSE
PERMANENT DIFFERENCES
➤ Permanent di erences are those that do not have future tax consequences
➤ Examples:
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 law
E. Life insurance premium on employees where the entity is the irrevocable bene ciary
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TEMPORARY DIFFERENCES
➤ Temporary di erences are “di erences between the carrying amount of an asset or
liability in the statement of nancial position and its tax base
A. Taxable temporary di erences - those that result to future taxable amounts when
the carrying amount of the asset or liability is recovered or settled
B. Deductible temporary di erences - those that result to future deductible amounts
when the carrying amount of the asset or liability is recovered or settled.
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SUMMARY OF CONCEPTS
ACCOUNTING FOR DEFERRED TAXES
➤ PAS 12 requires the use of the asset-liability method (also called balance sheet
liability method) in accounting for deferred taxes.
A. Tax Base of an asset - is the amount that will be deductible for tax purposes
against any taxable economic bene ts that will ow to an entity when it recovers
the carrying amount of the asset.
B. Tax Base of a liability - is its carrying amount, less any amount that will be
deductible for tax purposes in respect of that liability in future periods.

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ACCOUNTING FOR DEFERRED TAXES
ACCOUNTING FOR DEFERRED TAXES
ACCOUNTING FOR DEFERRED TAXES
RECOGNITION
The fundamental principle under PAS 12 is that “an entity shall, with certain limited
exceptions, recognize a deferred tax liability whenever recovery or settlement of the
carrying amount of an asset or liability would make future tax payments larger than
they would be in such recovery or settlement were to have no tax consequences.”
MEASUREMENTS

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.

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