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    Fin Report - Deferred Tax

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    vidushee.pem
    There may be differences between how items are treated for tax purposes versus financial reporting under IFRS. Deferred tax accounting aims to resolve this by recognizing temporary differences between an asset or liability's tax base and carrying value. IAS 12 outlines reasons for recognizing deferred tax, such as adhering to accrual concepts and to avoid overstating profits. Temporary differences are discrepancies between tax bases and carrying amounts that will result in taxable or deductible amounts in future periods. Deferred tax liabilities must be recognized for taxable temporary differences, with certain exceptions. Deferred tax assets may be recognized if future deductible temporary differences are probable. Deferred tax is calculated using expected future tax rates and represents the tax effects of how assets and liabilities

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    Fin Report - Deferred Tax

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    vidushee.pem
    66 views2 pages
    There may be differences between how items are treated for tax purposes versus financial reporting under IFRS. Deferred tax accounting aims to resolve this by recognizing temporary differences between an asset or liability's tax base and carrying value. IAS 12 outlines reasons for recognizing deferred tax, such as adhering to accrual concepts and to avoid overstating profits. Temporary differences are discrepancies between tax bases and carrying amounts that will result in taxable or deductible amounts in future periods. Deferred tax liabilities must be recognized for taxable temporary differences, with certain exceptions. Deferred tax assets may be recognized if future deductible temporary differences are probable. Deferred tax is calculated using expected future tax rates and represents the tax effects of how assets and liabilities

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    Fin report - deferred tax

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    There may be differences between how items are treated for tax purposes versus financial reporting under IFRS. Deferred tax accounting aims to resolve this by recognizing temporary differences between an asset or liability's tax base and carrying value. IAS 12 outlines reasons for recognizing deferred tax, such as adhering to accrual concepts and to avoid overstating profits. Temporary differences are discrepancies between tax bases and carrying amounts that will result in taxable or deductible amounts in future periods. Deferred tax liabilities must be recognized for taxable temporary differences, with certain exceptions. Deferred tax assets may be recognized if future deductible temporary differences are probable. Deferred tax is calculated using expected future tax rates and represents the tax effects of how assets and liabilities

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    66 views2 pages

    Fin Report - Deferred Tax

    Uploaded by

    vidushee.pem
    There may be differences between how items are treated for tax purposes versus financial reporting under IFRS. Deferred tax accounting aims to resolve this by recognizing temporary differences between an asset or liability's tax base and carrying value. IAS 12 outlines reasons for recognizing deferred tax, such as adhering to accrual concepts and to avoid overstating profits. Temporary differences are discrepancies between tax bases and carrying amounts that will result in taxable or deductible amounts in future periods. Deferred tax liabilities must be recognized for taxable temporary differences, with certain exceptions. Deferred tax assets may be recognized if future deductible temporary differences are probable. Deferred tax is calculated using expected future tax rates and represents the tax effects of how assets and liabilities

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
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    Deferred taxes

    There may be a discrepancy as the way things are treated under tax legislation and the IFRS
    recognized criteria for income and cost items differ. Deferred tax accounting attempts to
    resolve this discrepancy. The temporary differences between a liability's or asset’s tax base
    and its carrying value in the financial statements serve as the foundation for the IAS 12
    standard.

    IAS 12 states the following reasons for recognising deferred tax:

     To abide by the accrual concepts


     The deferred tax will have an impact on an actual tax liability sooner or later
     The overvaluation of profit caused by failure to take into account deferred tax
    liabilities can result in :
    a. over-optimistic dividend expenditures based on exaggerated profits
    b. misrepresentation of earnings per share and of the price ratio
    c. shareholders being misinformed

    The total ascribed to an asset or liability for taxation uses is referred to as its tax base. When
    it comes to an asset, the tax base is the amount that is allowable for tax uses beside any
    upcoming taxable paybacks resulting from the asset. However, for a liability, the tax base is
    its net book value minus any taxable amount that will be charged in the future periods.

    Discrepancies between an asset's and liability's tax bases and their respective carrying amount
    in the balance sheet is defined as temporary differences. Taxable temporary variances are
    disparities that will give rise to taxable amounts when computing tax on profits (tax loss) for
    upcoming years when the book value of the asset or debt is recovered or cleared. However,
    IAS12 defined deductible temporary variances as transitory discrepancies "that will cause
    amounts that are deductible in ….forthcoming periods". (IAS12)

    Treatment of deferred tax

    Deferred tax liability must be acknowledged whenever there is any taxable transitory
    variances. It is to be noted that not any deferred tax liability is to be acknowledged if it arises
    from goodwill, the amortisation of which is not acceptable for tax determinations. Moreover,
    deferred tax asset should be documented for a deductible temporary difference if the
    temporary difference is likely to be used in the future. After the completion of respective
    accounting period, the book value of deferred tax assets need to be calculated.
    Besides, deferred tax assets and liabilities should be computed using the rate of tax that are
    anticipated to apply during the year in which the asset or liability is realized or resolved. As a
    result, deferred tax assets and liabilities cannot be cut-rate. Deferred tax liabilities and
    deferred tax assets are measured to represent the tax effects of how the entity intends to
    recover or settle the carrying value of its assets and liabilities.

    Deferred tax is applied wholly for all transitory variances occurring between assets and
    liabilities’ tax bases and their book values in the balance sheet. There are certain exceptions
    where the temporary discrepancy occurs:

    • Initial acknowledgement of goodwill.


    • Original acknowledgement of an asset or obligation in a non-business combined
    deal that has no influence on accounting profit or taxable profit.
    • Investments in divisions, affiliates, acquaintances, and joint ventures that meet
    specific conditions.

    Calculation of deferred taxes - Formulae

    The following formulas can be used to calculate deferred tax for assets and liabilities:

    Here, the formula recapitulates the total of tax to be acknowledged in an accounting year:

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