IAS 12 - Deferred Tax Flashcards
(18 cards)
What is the Accounting profit
The profit or loss for a period before deducting tax expense. In accordance with IFRS
(Following accounting standards)
What is Taxable profit
The profit or loss for a period determined in accordance with the rules established by the
taxation authorities, upon which income taxes are payable (recoverable)
What is current tax
The amount of income taxes payable (recoverable) in respect of the taxable profit/( tax
loss) for a period
What are Tax allowances
The tax equivalent of an accounting item.
What is the correct DR and CR for the tax payable
DR Income tax expense (SOPL)
CR Income tax liability (SOFP)
What is a common occurrence with current tax calculations?
Often this estimate is not the exact amount that is actually paid resulting in an over or under provision of income taxes.
What does it mean if there is an under provision?
The full amount of tax was not paid and thus it is added on as an expense to tax in the next year and appears as a Debit (DR)
What is deferred tax?
Deferred tax liabilities are the amounts of income taxes payable in future periods in respect of taxable temporary differences
What does it mean if there is an over provision?
The full amount of tax was paid and thus it is a deduction in tax payable in the next year and appears as a Credit (Credit)
Why does deferred tax occurred?
Deferred tax arises because accounting profit is not equal to taxable profit
What is a key facts about deferred tax?
Deferred tax is something you never pay.
It is purely an accounting adjustment used to match the tax effects of transactions with
their accounting impact and thereby produce less distorted results
What are permanent differences?
Items that would have been used in calculating accounting profit but would not be used in calculating taxable profit e.g some entertaining expenses.
They cause no problem with accounting, so can be ignored
What are temporary differences?
Items that would have been used in calculating accounting profit and taxable profit but in different accounting periods e.g. depreciation/tax allowances.
What are some examples of permanent differences
Formation costs and Entertaining customers and other business associates
What are some features of formation costs
– Company Act: must be written off in the first accounting period
– Corporation tax rules: these are a capital expenditures and cannot be
deducted from the profit for tax purposes
– → higher taxable profit → higher tax
What are some features of Entertaining costs?
– Normal commercial trading expense under accounting rules
– May not be allowed to be deducted from profits for tax purposes
What are temporary. differences
Differences between the carrying amount of an asset or liability in the statement of financial position and its tax base
