Showing posts with label Deferred Tax. Show all posts
Showing posts with label Deferred Tax. Show all posts

Wednesday, May 15, 2013

The Objective and Scope of IAS 12, INCOME TAXES

The OBJECTIVE of IAS 12 is to prescribe the accounting treatment for INCOME TAXES.

The principal issue in accounting for income taxes is how to account for the CURRENT and FUTURE tax consequences of :

  1. the future recovery (settlement) of the carrying amount of assets (liabilities) that are recognized in an entity’s statement of financial position; and
  2. transactions and other events of the current period that are recognized in an entity’s financial statements.

It is inherent in the recognition of an asset or liability that the reporting entity expects to recover or settle the carrying amount of that asset or liability. If it is probable that recovery or settlement of that carrying amount will make future tax payments larger (smaller) than they would be if such recovery or settlement were to have no tax consequences, IAS 12 requires an entity to recognize a DEFERRED TAX LIABILITY (DEFERRED TAX ASSET), with certain limited exceptions.

IAS 12 requires an entity to account for the tax consequences of transactions and other events in the same way that it accounts for the transactions and other events themselves. Thus, for transactions and other events recognized in PROFIT OR LOSS, any related tax effects are ALSO RECOGNIZED in PROFIT OR LOSS. For transactions and other events recognized OUTSIDE PROFIT OR LOSS (either in OTHER COMPREHENSIVE INCOME or DIRECTLY IN EQUITY), any related tax effects are also recognized OUTSIDE PROFIT OR LOSS (either in other comprehensive income or directly in equity, respectively).  Similarly, the recognition of deferred tax assets and liabilities in a business combination affects the amount of goodwill arising in that business combination or the amount of the bargain purchase gain recognized.

IAS 12 also deals with the recognition of DEFERRED TAX ASSET arising from UNUSED TAX LOSSES or UNUSED TAX CREDITS, the presentation of income taxes in the financial statements and the disclosure of information relating to income taxes.

IAS 12 shall be applied in accounting for income taxes, which include all domestic and foreign taxes which are based on taxable profits. Income taxes also include taxes, such withholding taxes, which are payable by a subsidiary, associate or joint venture on a distribution to the reporting entity.

This standard does not deal with the methods of accounting for government grants or investment tax credits. However, this Standard does deal with the accounting for temporary differences that may arise from such grants or investment tax credits (HRD).

Wednesday, September 15, 2010

Proposed amendments to IAS 12 Deferred Tax : Recovery of Underlying Assets

On 10 September 2010, the IASB published for public comment an exposure draft (ED) of Deferred Tax : Recovery of Underlying Assets.

The proposal would amend one aspect of IAS 12 Income Taxes. Under IAS 12, the measurement of deferred tax liabilities and deferred tax assets depends on whether an entity expects to recover an asset by using the asset or by selling the asset. In some cases, it is difficult and subjective to assess whether recovery will be through use or through sale.

To provide a practical approach in such cases, the proposed amendments state that, in specified circumstances, the measurement of deferred tax liabilities and deferred tax assets should reflect a rebuttable presumption that the carrying amount of the underlying asset will be recovered entirely by sale.

The specified circumstances are that the deferred tax liability or deferred tax asset arises from :

  1. investment property, when an entity applies the fair value model in IAS 40 Investment Property; or
  2. property, plant and equipment or intangible assets, when an entity applies the revaluation model in IAS 16 Property, Plant and Equipment or IAS 38 Intangible Assets.

The presumption is rebutted only when an entity has clear evidence that it will consume the asset’s economic benefits throughout its economic life.

Overall, the proposed amendments are intended to provide a practical approach for measuring deferred tax liabilities and deferred tax assets when it would be difficult and subjective to determine the expected manner of recovery.

The ED is open for comment until 9 November 2010.

The Press Release and the Exposure Draft are available from the IASB website : IASB proposes to amend one aspect of accounting for deferred tax