FR CH17 2024-25
FR CH17 2024-25
FR CH17 2024-25
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Key to chapter content ICONS
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CHAPTER 17:
IAS 12 Income Taxes
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Current Tax
Current tax
The amount payable to tax authorities in relation to trading and other
activities of the year
Dr Tax expense
Cr Liability
When settled:
• If payment < liability, the balance on the liability account is an
overprovision a reduction in P/L expense of following year.
• If payment > liability, the balance on the liability account is an
underprovision increases P/L expense of following year
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Change in Accounting Estimate
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Deferred Tax
Deferred tax
An accounting measure used to match the tax effects of transactions
with their accounting impact and so produce less distorted results.
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Temporary Differences
SOPL SOFP
Accounting expense/income Carrying amount
v v
Tax expense/income Tax base
A Co: A Co:
Accounting income $10,000 Receivable carrying amount $10,000
Tax income $0 Tax base $0
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Activity: Tax Base
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Answer to Activity: Tax Base
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Activity: Non-current Assets
What is the carrying amount, tax base and temporary difference each year?
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Answer to Activity: Non-current Assets
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Approach to Deferred Tax
St • Compare carrying amount and tax base
ep
1
St • Resulting taxable temporary difference or
ep deductible temporary difference
2
St • Apply tax rate to temporary difference to give
ep deferred tax liability or asset
3
St • Recognise deferred tax
ep
4
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Step 2: Temporary Differences
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Step 3: Deferred Tax Liability or Asset
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Temporary or Deductible?
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Step 4: Recognise Deferred Tax
Offset if
• Legally enforceable right to
settle net
• Same tax authority
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Real world example
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Step 4: Recognise Deferred Tax – Additional Issues
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The Revaluation Issue
Additional temporary
If an accounting revaluation is recognised difference and so
and the same revaluation is NOT deferred tax liability,
recognised for tax purposes recognised in OCI
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Activity: Revaluation
The following amounts relate to Zebra Co’s property, plant and equipment:
$000 $000
31 December 20X7
1,000 800
31 December 20X8
1,250 650
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Technical articles: Deferred tax
Technical article
Deferred tax
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Chapter 17: Summary
Current tax is the amount payable for a year +/– any under/over provision
relating to a previous period (accounting estimate)
Deferred tax is an accounting adjustment for temporary differences
Carrying amount v Tax base Temporary difference
For an asset:
Carrying amount > Tax base Taxable temporary difference
Carrying amount < Tax base Deductible temporary difference
Taxable temporary difference tax rate = Deferred tax liability
Deductible temporary difference tax rate = Deferred tax asset
Changes in the net deferred tax liability/(asset) are usually recognised in
profit or loss
Deferred tax relating to a revaluation of PPE is recognised in OCI.
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Chapter 17: Practice questions
For FR
Attempt the Study Question Bank questions listed above after studying this chapter
Attempt Revision Question Bank questions in your revision phase, after studying all chapters
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Thank you
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