Deferred Tax Ias 12
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Transcript of Deferred Tax Ias 12
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8/13/2019 Deferred Tax Ias 12
1/22
DEFERRED TAX[IAS 12] 1
DEFERRED TAX [IAS 12]
LEARNING OBJECTIVES
Understand concept of deferred tax
Contrast current tax & deferred tax
Compute deferred tax:
Income statement approach
Balance sheet approach
Recognition of deferred tax assets
Disclosure in financial statements
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DEFERRED TAX[IAS 12] 2
DEFERRED TAX [IAS 12]
KEY FOCUS AREAS
Exemptionoffice buildings
Recoupment & Capital profit
Utilisation of assessed losses
Deferred tax assets
Change of intention
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DEFERRED TAX[IAS 12] 3
DEFERRED TAX [IAS 12]
DEFINTION
PROVISION vs EXPENSES
Frameworkdefinitions
IAS 37Provisions & Contingencies
Liability & Asset
Recognition criteria
Probable & Measurement
Expenses [transfer]
APPROACH
Balance sheet [IAS 12 p9]
[Carrying amount vs Tax base]
[Movement = expense/transfer to I/S]
Income statement
[Accounting profit vs Tax profit]
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DEFERRED TAX[IAS 12] 4
DEFERRED TAX [IAS 12]
MEASUREMENTp46
MEASUREMENT
Expected amount paid or recovered
Future liability/asset
Conditions prevailing at year end
Based on future recovery/settlement Probable & reliably measured
TAX RATE
Tax rate at year end
Tax rate substantially enacted In budget speech
Passed by parliament
AC 502in speech
IMPACT
Different rates applied
Company taxactual rate
Deferred taxenacted rate
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DEFERRED TAX[IAS 12] 5
DEFERRED TAX [IAS 12]
MEASUREMENTp46
28/02/X6 Year ended
[Rate at year end]
15/03/X6 Rate enacted
[Effective30/04/X6]
31/03/X6 Year ended
[Co. taxactual rate]
[Defer taxenacted]
30/04/X6 Year ended[Enacted rate]
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DEFERRED TAX[IAS 12] 6
DEFERRED TAX [IAS 12]
RATE CHANGEp47
SUBSTANTIALLY ENACTED
By year end
APPLICATION
Adjust balance at beginning of year
Apply new rate at year end
BALANCE SHEET
Measured at rate enacted
INCOME STATEMENT
Effect of change in rate
Movement for the year
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DEFERRED TAX[IAS 12] 7
DEFERRED TAX [IAS 12]
RATE CHANGEp47
REVALUATION OF ASSETS
Match deferred tax with reserve
Revaluation method
[Revaluation reservebalance sheet]
Fair value method
[Tax expenseincome statement]
CHANGE IN RATE
Adjustment is matched to reserve
Revaluation method
[Revaluation reservebalance sheet] Fair value method
[Tax expenseincome statement]
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DEFERRED TAX [IAS 12]
EXEMPTIONSp15
GOODWILL [p15(a)] Initial recognition
INITIAL RECOGNITION [p15(b)] Initial recognition of assets & liabilities
Not business combination
Not affect accounting or tax profit
Accounting or tax profit [p15(b)(ii)] Initial recognition of assets & liabilities
At time of transaction
Not affect accounting nor tax profit
e.g. Administrative buildings Depreciated [accounting]
No wear & tear [tax]
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DEFERRED TAX [IAS 12]
EXEMPTIONSp15(b)
EXCLUSIONS
Revaluation of assets & liabilities
Subsequent to initial recognition
ILLUSTRATION:
BUILDING [OFFICES]
01/01/X4 Purchased [cost] R450 000
31/12/X6 Carrying amount R382 500
[depreciated @ 5% p.a]
[no deduction for tax]31/12/X6 Fair value [NRC] R430 000
Rate = 30%
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DEFERRED TAX[IAS 12] 10
DEFERRED TAX [IAS 12]
EXEMPTIONSp15(b)
ILLUSTRATION: SOLUTION
31/12/X6 Fair value [NRC] 430 000
Tax base Nil .
Temporary difference 430 000
Exempt [based on cost] 382 500
Temporary difference 47 500
Deferred tax @ 30% 14 250
NB: Initial recognition is exempt
[Carrying value based on cost]
Subsequent recognition [valuation]
[Not exemptsubject to deferred tax]
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DEFERRED TAX [IAS 12]
MEASUREMENTp51
INTENTION Reflect manner liability is settled
Managements intention at year end
Based on future intention of company Value in use [continued future use] Through disposal
VALUE IN USE Through ordinary business
[Assets = depreciation/wear & tear]
THROUGH DISPOSAL
Profit realised on disposal Separate profit between
Recoupment [company tax]
Capital profit [CGT]
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DEFERRED TAX [IAS 12]
MEASUREMENTp51
CHANGE OF INTENTION
Assess intention at year end
Change of intention
Revalue asset to account for change
Recalculate deferred tax
ILLUSTRATION:
31/12/X6 Original cost R500 000
Carrying value R300 000
Tax base R240 000
Recoverable amount[net sale value] R550 000
Tax rate = 30%
CGT = 50% of tax rate
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DEFERRED TAX [IAS 12]
MEASUREMENTp51
ILLUSTRATION: SOLUTION
Carrying value 300 000
Tax base 240 000Temporary difference 60 000
Deferred tax [value in use] 18 000
C/value Tax base
Recoverable amount 550 000 550 000Carrying value 300 000 240 000
Profit 250 000 310 000
Recoupment 260 000
Capital profit 50 000
Deferred tax: recoupment 78 000
capital profit 7 500
85 500
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DEFERRED TAX[IAS 12] 14
DEFERRED TAX [IAS 12]
MEASUREMENTp51
ILLUSTRATION: SOLUTION
DR: ACCUM DEPR 260 000
CR: MACHINERY 260 000
[Reversing depreciation on revaluation]
DR: MACHINERY 310 000CR: REVALUE RESERVE 310 000
[Revaluation of machinery]
DR: REVALUE RESERVE 67 500CR: DEFERRED TAX 67 500
[Adjust deferred tax for change of intention]
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DEFERRED TAX[IAS 12] 15
DEFERRED TAX [IAS 12]
ASSESSED LOSSp34
ASSESSED LOSS [IAS 12 p34]
Represents a future tax relief
[Set off against future taxable income]
Give rise to deferred tax asset
DEFERRED TAX ASSETS
Recovery depends on future profit Recognition criteria [IAS 12 p36]
Sufficient temporary differences
Future profitability
Non-recurring cause for loss Tax plan for turn around
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DEFERRED TAX[IAS 12] 16
DEFERRED TAX [IAS 12]
ASSESSED LOSSp34
LIMITATION [IAS 12 p35]
Deferred tax assets is limited to:
Extent of temporay differences
[credit balance of deferred tax]
[reduced to a nil balance]
Sufficient future taxable income
[supporting evidence p82]
ILLUSTRATION:
31/12/X7 Carrying value R450 000
Tax base R120 000(a) Profit R180 000
(b) Loss R50 000
Rate = 30%
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DEFERRED TAX [IAS 12]
ASSESSED LOSSp34
ILLUSTRATION: SOLUTION
Carrying value 450 000
Tax base 120 000
Temporary difference 330 000
Deferred tax 99 000
(a) (b)
Profit/Loss 180 000
Temp difference
Assessed loss
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DEFERRED TAX[IAS 12] 18
DEFERRED TAX [IAS 12]
ASSESSED LOSSp34
ILLUSTRATION: SOLUTION
(a) (b)
Temp difference 330 000 330 000
Assessed loss
Net Temp difference 180 000
Deferred tax liability 54 000
Deferred tax asset
NB: Deferred tax asset:
Limitationassess loss of R330 000
[Deferred tax asset unrecognised]
Recognisedassess loss R380 000
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DEFERRED TAX[IAS 12] 19
DEFERRED TAX [IAS 12]
ASSESSED LOSSp34
ILLUSTRATION: SOLUTION
(a)
DR: DEFERRED TAX 45 000CR: TAX EXPENSE 45 000
[Deferred tax i.r.o tax loss]
(b) RECOGNISED ASSET
DR: DEFERRED TAX 114 000
CR: TAX EXPENSE 114 000
[Deferred tax i.r.o tax loss]
UNRECOGNISED
DR: DEFERRED TAX 99 000CR: TAX EXPENSE 99 000
[Deferred tax i.r.o tax loss]
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DEFERRED TAX [IAS 12]
UNRECOGNISEDp37
DEFERRED TAX ASSET
Previously unrecognised
[Limited to zero balance]
Re-assessed at each year end
Recognised to extent:
Future profit are probable
ACCOUNTING TREATMENT
Re-instate unrecognised asset
Re-instate at beginning of year
[current years tax rate] Provide for current years differences
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DEFERRED TAX [IAS 12]
UNRECOGNISEDp37
ILLUSTRATION:
31/12/X7 31/12/X6
Carrying amount 560 000 730 000
Tax base 750 000 910 000
The tax rate remained 30%.At 31/12/X6 there was uncertainty about the
future taxable income.
At 31/12X7 there was certainty that the
company will earn taxable income in future
years.
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DEFERRED TAX [IAS 12]
UNRECOGNISEDp37
ILLUSTRATION: SOLUTION
C/value T/base Diff D/tax
31/12/X6 560 000 730 000 -170 000 -51 000
31/12/X7 750 000 910 000 -160 000 -48 000
Provision for year 3 000
31/12/X7:DR: DEFERRED TAX 51 000
CR: TAX EXPENSE 51 000
[Recognise previously unrecognised asset]
DR: TAX EXPENSE 3 000
DR: DEFERRED TAX 3 000
[Deferred tax provision for the year]