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IAS 12-INCOME TAX (Summary)

IAS 12 outlines the accounting treatment for current and deferred tax, emphasizing that the income tax expense in financial statements includes both types. It defines key terms such as accounting profit, taxable profit, and the distinction between temporary and exempt differences that affect tax calculations. The document also details how to calculate the income tax expense based on profit before tax and adjustments for exempt and temporary differences.

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6 views6 pages

IAS 12-INCOME TAX (Summary)

IAS 12 outlines the accounting treatment for current and deferred tax, emphasizing that the income tax expense in financial statements includes both types. It defines key terms such as accounting profit, taxable profit, and the distinction between temporary and exempt differences that affect tax calculations. The document also details how to calculate the income tax expense based on profit before tax and adjustments for exempt and temporary differences.

Uploaded by

ie2024.academy
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PRESENTED BY SIBONELO S’PHEPHELO NCUBE

INTRODUCTION
➢ IAS 12, Income taxes prescribes the accounting treatment of both current and deferred
tax.
➢ The income tax expense recognised in the statement of profit or loss and other
comprehensive income comprises both current and deferred tax.
➢ Current tax is calculated on the taxable income of an entity according to the rules of
the Income Tax Act.
➢ Therefore, the amount of current tax payable by an entity is often not proportionate to
the entity’s profit for the period in the statement of profit or loss and other
comprehensive income. Examples of these differences are:
✓ The carrying amounts in the entity’s statement of financial position differs from
the tax base.
✓ Income and expenses that are recognised in different periods for accounting and
tax purposes. These differences are temporary differences and are used as a
basis to calculate deferred tax.
✓ Income and expenses that are not taxable or deductible for tax purposes. These
differences are known as exempt differences.
DEFINITIONS
The following are terms used in IAS 12 and their definitions:
a) Accounting profit is profit or loss for a period before deducting tax expense.
b) Taxable profit is the profit or loss for a period upon which income tax is payable to the
SA Revenue Service. This figure is calculated by adjusting the accounting profit
according to the rules established by the tax authorities.
c) Tax expense/tax income is the aggregate amount disclosed in the statement of profit
or loss and other comprehensive income (P/L) as income tax expense/income. This
includes both current tax and deferred tax.
d) Current tax is the amount of income taxes payable/(recoverable) in respect of the
taxable profit/(tax loss) for the year.
e) Deferred tax liabilities are the amount of income taxes payable in future periods in
respect of taxable temporary differences.
f) Deferred tax assets are the amounts of income taxes recoverable in future periods in
respect of deductible temporary differences.
g) The tax base (TB) is the amount attributable to that asset or liability for tax purposes.
h) Temporary differences are differences between the tax base and the carrying amount
of the asset or liability in the statement of financial position.
Temporary differences
➢ A temporary difference also occurs when income included in profit and loss is not the
same as the income that is included for tax purposes for that accounting period.
➢ there are many items that can give rise to deferred tax such as:
• Revenue received in advance – taxed by SARS but not included in revenue by the
entity
• Allowances for credit losses versus whatever SARS allows
• Profit on sale of plant versus recoupment
• Loss on sale of plant versus scrapping allowance
• Prepayments - deductible for tax purposes but not included in profit and loss
Exempt items
➢ Exempt items are none-taxable income and non-deductible expenses.
➢ Some examples of exempt items are:
• Local dividends received
• Penalties and interest on late tax payments.
• Fines
• Depreciation on buildings used for administration (up to 1st April 2007)
• Most donations
• Impairment of goodwill where this is not deductible for tax purposes.
➢ The income tax expense is calculated in the following manner:
Profit before tax (as per the P/L) XXX
Exempt differences XXX
Profit after exempt differences XXX
Movement in temporary differences XXX
Trk;Taxable profit/tax loss XXX

Current tax expense (28% of taxable profit) XXX


Deferred tax expense (28% of temporary diff) XXX
SA Normal tax XXX

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