13 - Tax

Two elements to tax that an entity has to deal with:

Current tax | Deferred tax

Current tax definition:

The amount payable to the tax authorities | in relation to the trading activities of the current period.

Deferred tax definition:

An accounting measure used to match | the tax effects of transactions | with their accounting treatment.

Tax expense for an entity calculation

Tax expense = Current tax +/- movement in deferred tax.

According to the accruals concept, the tax effect of the transaction should be reported in the same accounting period as...

... as the transaction itself.

Deferred tax is recognised on temporary differences between the accounting and...

and tax treatment of a transaction.

Temporary difference is the difference between...

Carrying amount of an asset or liability and its tax base.

Tax deductions for the cost of NCA that have a different pattern to...

to write off of the asset | in the FSs.

Assets are revalued upwards in the FSs, but...

but no adjustment is made for TAX purposes.

Development costs are capitalised and amortised to profit or loss in future periods, but were...

were deducted for TAX purposes as incurred.

Calculating deferred tax - first step.

Temporary differences determination.

If the CA exceeds the tax base, the temporary difference is said to be a...

a taxable temporary difference (a liability).

If the tax base exceeds the CA, the temporary difference is...

a deductible temporary difference (an asset).

The tax rate in force (or expected to be in force) when the asset is realised or the liability is settled is applied to the temporary difference to calculate the...

the deferred tax balance.

The rate of deferred tax must be based on legislation enacted or substantively enacted by ... date.

by the reporting date.

Deferred tax assets and liabilities - time value.

Deferred tax assets and liabilities are NOT discounted to PV.

The entry to PoL or OCI in respect of deferred tax is the difference between...

net liability/asset | at the beginning of the year | and at the end of the year.

If the item giving rise to the deferred tax is dealt with in PoL, the related deferred tax should...

should also be presented in PoL.

If the item giving rise to the deferred tax is dealt with in OCI, the related deferred tax should...

should also be recorded in OCI.

Share option scheme. The amount of tax relief granted is based on the intrinsic value of the options* at the exercise date. This delayed tax relief give rise to...

to a deferred tax asset.

Intrinsic value of share options - The difference between...

between the market price of the shares and the exercise price of the option.

Where an entity has unused tax losses IAS 12 allows a deferred tax asset to be recognised to the extent that that it is...

is PROBABLE | that future TAXABLE PROFITS will be available | against which the UNUSED TAX LOSSES can be utilised.

The identifiable net assets of the acquired subsidiary are consolidated at FV but the tax base derives from the values in the subsidiary's individual FSs. A temporary difference is created, giving rise to...

deferred tax in the in the consolidated FSs.

Provisions for unrealised profits reduce the CA of inventory in the consolidated FSs but the tax base is its costs in the individual FSs. A temporary difference is created, giving rise to...

to a deferred tax asset in the consolidated FSs.

Goodwill itself does not give rise to deferred tax because...

because IAS 12 specifically excludes it.