PAS 12

PAS 12:
INCOME
TAX
Introduction
PAS 12 prescribes the accounting for income taxes,
specifically taxes based on taxable profits. The income
tax expense reported in financial statements may differ
from the actual tax payable to the BIR due to
differences between Philippine Financial Reporting
Standards (PFRSs) and Philippine tax laws. These
differences arise because certain items are recognized
as income or expense in financial reporting but are
either non-taxable, non-deductible, or recognized at a
different time under tax laws. Such differences are
classified as either permanent or temporary, with PAS
12 addressing their accounting, presentation, and
reconciliation.
Income tax - a type of tax governments impose on income

generated by businesses and individuals within their jurisdiction
Accounting
profit and
Taxable profit
Accounting profit
and Taxable profit
Accounting profit - the profit or
loss before deducting tax
expense
Taxable profit - the profit/loss for

a period, calculated based on the
regulations set by the tax
authorities, which forms the basis
for determining income taxes(or
recoverable amount)
Income tax expense &
Current tax expense
Income tax expense(tax income) -
the total amount included in the
determination of profit or loss for
the period
Current tax expense(current tax) -

the amount of income taxes payable
in respect of the taxable profit for a
period
Deffered tax expense(income
benefit)
the net changes in deffered tax assets and deffered tax
liabilities during the period
Deferred Tax Expense: Increase in deferred tax liabilities
> Increase in deferred tax assets. (Difference is an
expense)
Deferred Tax Income/Benefit: Increase in deferred tax
assets > Increase in deferred tax liabilities. (Difference is
an income/benefit)
Permanent differences
The income or expenses that affect either accounting profit or taxable
profit but not both, meaning they are excluded from the income tax
return. These differences arise from non-taxable income, non-
deductible expenses, or items already subject to final tax. As they do
not impact future tax computations, they do not lead to deferred tax
assets or liabilities. Examples of permanent differences include:
1. Interest income on government bonds and treasury bills.
2. Interest income on bank deposits.
3. Dividend income.
4. Fines, surcharges, and penalties due to law violations.
5. Life insurance premiums where the entity is the irrevocable
beneficiary.
Temporary differences
It occurs when the carrying amount of an asset or liability in financial
statements differs from its tax base. These differences can either:
1. Taxable Temporary Differences: Lead to future taxable amounts,

resulting in deferred tax liabilities.
2. Deductible Temporary Differences*: Lead to future deductible
amounts, resulting in deferred tax assets.
Temporary differences include timing differences, where income or

expenses are recognized in different periods for financial reporting and
tax purposes. These differences are temporary because they reverse in
subsequent periods and have future tax consequences, giving rise to
deferred tax assets or liabilities.
Tax base
Concepts
Tax base - refers to the amount
attributed to assets or liabilities for tax
purposes:
Assets: Amount deductible against taxable

benefits when recovered. If non-taxable, equals
the carrying amount.
Liabilities: Carrying amount less any deductible
future amounts.
If no future tax consequence, tax base equals
carrying amount.
Recognition
principles
Fundamental Principle:Recognize
deferred tax liabilities/assets when
recovery/settlement of an asset/liability
alters future tax payments.
Deferred Tax Liabilities
Recognized for taxable temporary differences, except:
1. Goodwill recognition.
2. Non-business combination transactions affecting neither
accounting nor taxable profits.
3. Investments where control over reversal timing exists
Deferred Tax Assets
Recognized for deductible temporary differences, unused tax
losses, or credits, if probable taxable profit will be available.
Limitation and
Measurement
Limitations on Deferred Tax Asset Recognition:
1. Recognized only if probable taxable profits exist
or sufficient temporary differences align.
2. Not recognized or reduced when realization is
improbable.
Measurement:
1. Based on expected tax rates at reversal time,
using enacted/substantively enacted laws.
2. Discounting deferred tax assets/liabilities is
prohibited.
Presentation in
Financial
Statements
Statement of Financial Position:
- Present deferred tax
assets/liabilities as noncurrent
items.
- Offsetting permitted if legally
enforceable and related to the same
taxation authority.
Statement of Comprehensive
Income:
- Tax consequences align with
related transactions/events
(profit/loss, OCI, or equity).
Thank you
very much
for
listening!

PAS 12

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PAS 12:

Income tax - a type of tax governments impose on income

Taxable profit - the profit/loss for

Current tax expense(current tax) -

1. Taxable Temporary Differences: Lead to future taxable amounts,

Temporary differences include timing differences, where income or

Assets: Amount deductible against taxable

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