PAS 12: INCOME TAXES

Accounting profit

the profit or loss for a period before deducting tax expense

Taxable profit

profit or loss for a period, determined in accordance with the rules established by the taxation authorities upon which income taxes are payable

Income tax expense

is the total amount included in the determination of profit or loss for the period, It comprises od the current tax expense and the deferred tax expense

Current tax expense

the amount of income taxes payable (recoverable) in respect of the taxable profit (tax loss for a period)

Deferred Tax Expense (Income or benefit)

is the sum of net changes in deferred tax assets and deferred tax liabilities during the period

Permanent differences

when income and expenses enter in the computation of either accounting profit or taxable profit but not both.

Permanent differences usually arise from

non-taxable and non-deductible expenses and those that have already been subjected to final taxes.

Permanent difference

Interest income on government and treasury bills

Permanent difference

interest income on bank deposits

Permanent Difference

dividend income

Permanent difference

fines, surcharges and penalties arising from violaion of law

Permanent Difference

Life insurance premium on employees where the entity is the irrevocable beneficiary

Temporary Differences

Differences between the carrying amount of an asset or liability in the statement of financial position and its tax base

Taxable Temporary differences

those that result to future taxable amounts when the carrying amount of the asset or liability is recovered or settled. Give rise to deferred tax liabilities

Deductible temporary differences

those that result to future deductible amounts when the carrying amount of the asset or liability is recovered or settled. Give rise to deferred tax assets.

Timing differences

arise when income and expenses are recognized for financial reporting purposes in one period but are recognized for taxation purposes in another period.

Taxable temporary differences

financial income is greater than the taxable income

Taxable temporary differences

The carrying amount of asset is greater than its tax base

Taxable temporary differences

The carrying amount of a liability is less than its tax base

Taxable temporary differences

Revenue is recognized in full under financial reporting but is taxable only when collected

Taxable temporary differences

A prepayment is capittalzied and amortized to expense under financial reporting but is tax deductible in full upon payment

Taxable temporary differences

an asset revalued upwards and no equivalent adjustment is made for tax purposes

Taxable temporary differences

depreciation recognized under financial reporting is lower than the depreciation recognized for taxation purposes

Deferred tax liabilities

the amount of income taxes payable in future period in respect of taxable temporary differences

Deductible temporary differences

financial income is less than the taxable income

Deductible temporary differences

the carrying amount of an asset is less than its tax base

Deductible temporary differences

the carrying amount of a liability is greater than its tax base

Deductible temporary differences

rent received in advance is treated as unearned income under financial reporting but is taxable in full upon receipt of cash

Deductible temporary differences

bad debt expense is recognized for financial reporting when the collectability of accounts receivable becomes doubtful while it is tax deductible only when the accounts receivable is deemed worthless

Deductible temporary differences

Warranty obligation is recognized as expense when a product is sold under financial reporting but is tax deductible only when actually paid

Deductible temporary differences

Losses and tax credits that can be carried forward and deducted from future taxable profits

Deferred tax assets

are the amounts of income taxes recoverable in future periods in respect of- deductible temporary differences, carryforwards if unused tax credits

Tax base of an asset

the amount that will be deductible for tax purposes against any taxable economic benefits that will flow to an entity when it recovers the carrying amount of the asset. If those economic benefits will not be taxable, the tax base of the asset is equal to its carrying amount.

Tax base of a liability

is its carrying amount less any amount that will be deductible for tax purposes in respect of that liability in future periods, in the case of revenue which is received in advance, the tax base of the resulting liability is its carrying amount, less any amount of the revenue that will not be taxable in future periods

Not recognzied as a taxable temporary difference

initial recognition of goodwill

Not recognzied as a taxable temporary difference

initial recognition of an asset or liability in a transactions which is ot a business combination and, at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss)

Not recognzied as a taxable temporary difference

Investments in subsidiaries, branches, and associates, and interests in joint arrangements to the extent that the entity is able to control the timing of the reversal of the differences and it is probable that the reversal will not occur in the foreseeable future.

Taxes recognized in other comprehensive income

revaluation of property plant and equipment

Taxes recognzied in other comprehensive income

exchange differences arising on the translation of the financial statements of a foreign operation

Taxes directly in equity

adjustment to the opening balance of retained earnings resulting from a change in accounting policy or correction of a prior-period error

Taxes directly in equity

amounts arising on initial recognition of the equity component of a compound financial instrument.