9/26/2024

IAS 12 ( VAS (7) =

Chapter 11
Accounting for
Income Tax Taxes on Income

1
Copyright © 2019 by McGraw-Hill Education (Asia). All rights reserved. 2

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Thus ca miss la cosi than 2

Learning Objectives Content

1. Understand the concept of temporary differences, and tax base of 1.

1. Introduction
Introduction
an asset and tax base of a liability;
2. Permanent differences & temporary differences
2. Understand the concept of deferred tax as a liability and an asset;
3. Tax base
3. Apply the balance sheet approach in determining the balances of
4. Accounting for current income tax
a deferred tax liability and a deferred tax asset;
5. Accounting for deferred income tax
4. Check the tax expense analytically;

5. Apply appropriate principles to situations of tax losses;

6. Reconciliation and Analytical Check on Tax Expense

6. Present appropriately the tax effects of other comprehensive

in the Income Statement
income or items taken directly to equity; 7. Accounting for Unused Tax Losses
8. Presentation and Disclosures
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Objective of IAS 12 Thí dụ Thí dụ 1

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1. Understand the concept of temporary differences, and tax base of an Ngày 1/1/X0 Doanh nghiệp mua công cụ, dụng cụ đưa vào sử dụng,
trị giá 200 triệu và DN đã phân bổ 100% vào chi phí kinh doanh
asset and tax base of a liability;
trong kỳ (p/l).
2. Understand the concept of deferred tax as a liability and an asset;
Theo luật thuế DN phải tính vào chi phí của 2 năm (tức là phân bổ
3. Apply the balance sheet approach in determining the balances of a cho 2 năm)
deferred tax liability and a deferred tax asset; P/L:
Tổng doanh thu: 1.000
4. Check the tax expense analytically;
Tổng chi phí (chưa bao gồm chi phí CCDC): 600
5. Apply appropriate principles to situations of tax losses; Lợi nhuận trước thuế và CP CCDC: 400
Thuế suất 25%
6. Present appropriately the tax effects of other comprehensive income

5 or items taken directly to equity;

5 6

Diferences
Content Accounting profit/loss
8
Profit or loss for the period before deducting tax expense
1. Introduction Expenses recognized, but non-deductible for tax purposes
2. Permanent
Permanentdifferences
differences &
& temporary
temporary differences
differences Income not recognized, but included tax law
3. Tax base Expenses not recognized, but deductible for tax purposes

4. Accounting for current income tax Income recognized, but not under tax law

5. Accounting for deferred income tax

Taxable profit/loss
6. Reconciliation and Analytical Check on Tax Expense
in the Income Statement
Profit or loss for the period determined in accordance with
7. Accounting for Unused Tax Losses applicable tax rules
8. Presentation and Disclosures Differences
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Differences
Diferences
9 10
Permanent differences Temporary differences
 Accounting profit: Net profit or loss
for the reporting period before Permanent Permanent differences between the X1 X2 X3
deducting income tax expense. differences accounting profit and taxable profit
arise when income is not taxable or Timing differences
Differences expenses are not allowed for tax.
Ex
Temporary Deferred tax
 Tax profit (loss)- Tax income: The -Non taxable income: Government
differences
profit (loss) for taxable period,
bonds often provide tax-free
determined in accordance with the
rules established by the taxation interest income
authorities, upon which income -Non deductible expense
taxes or payable (recoverable)
Not deferred tax

9 10

Permanent differences & temporary differences Permanent differences & temporary differences
Temporary Differences
 Temporary differences arise from:
Permanent Differences
 Permanent differences arises from:
 Timing differences
 Differences in definition of what revenue or expense is in
 Income or expense is included in accounting profit in one period but is
the realm of tax and accounting
included in taxable profit in a different period
 Different bases of revenue/exp recognition in accounting and tax Type of permanent Examples Effect on tax
 For example, accrual accounting versus cash basis differences expense

Type of temporary Directions Examples Non-deductible Fines and penalties, disallowed Increase
accounting expense donations and entertainment
differences
expenses
Taxable revenue < Completed contracts < Percentage of
Accounting revenue completion Non-taxable Tax-exempt interest Decrease
Taxable temporary difference
accounting revenue
Tax deduction > Capital allowances > Depreciation
Accounting expense Tax-deductible item Double- or further-deduction of Decrease
Taxable revenue > Unearned revenue, taxed at the point that has no accounting expenses, investment tax credit
Deductible temporary Accounting revenue of collection expense equivalent
difference Tax deduction < Accrued expenses, deductible only Taxable revenue that Imputed revenue on non-arm’s length Increase
Accounting expense when paid has no accounting transactions
11 revenue
12 equivalent

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Illustration 11.1 Deferred Tax and

Illustration 11.1
Analytical Check on Tax Expense Content
 The following information pertains to Company XYZ (Year 1 -
20x1): 1. Introduction
 Non-deductible tax items:
 Capital transactions of $15,000 2. Permanent differences & temporary differences
Permannent
 Repairs and renovations of $20,000
3. Tax
Taxbase
base
 Disallowed expenses relating to entertainment, motor vehicle differences
expenses and fines amounted to $14,000 4. Accounting for current income tax
 Dividends of $10,000 were tax-exempt
 Expenses in respect of general provisions of $180,000 were disallowed 5. Accounting for deferred income tax
for tax purposes. However, actual claims and utilizations of $129,500 Temporary
were deductible 6. Reconciliation and Analytical Check on Tax Expense
differences
 Depreciation for the year was $80,000,capital allowances claimed
amounted to $708,355. Cost of fixed assets was $1,500,000 in the Income Statement
 Net profit before tax was $4,000,000 and tax rate was 22% 7. Accounting for Unused Tax Losses
 20x1 was the first year of operations
8. Presentation and Disclosures
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13

13 14

Deferred income tax: Tax base Tax Base of an Asset

15  Tax statement of financial position is drawn up using tax rules as bases
of measurement for assets and liabilities
Amount attributed to asset/liability for tax purposes  Taxable or deductible temporary differences:
 Difference between the amounts of assets and liabilities recognized on the
accounting and tax statement of financial position
 Examples of assets on statement of financial position:
Assets Liabilities
Tax rules Tax statement of financial position

Cost of asset is deductible over tax useful Balance is the unexpired cost or
Amount deductible against Carrying amount lives or tax amortization periods written down value, after applying tax
depreciation
any taxable benefits
Asset is not deductible for tax purposes Balance is zero (non-existent asset)
Amount deductible for tax
purposes in the future periods Cost of asset is fully deductible when sold or Balance is the cost
consumed or realized

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Tax base of an asset

Tax base of an asset
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The tax base of an asset is the amount that will be
deductible for tax purposes against the taxable economic Identify the future economic benefits
benefits that will flow to the entity when it recovers the (FEB)
carrying amount of the asset.
Is the FEB taxable when realized?

If these economic benefits will not be taxable, then the

tax base of an asset is equal to its carrying amount, so that Yes No
no deferred tax arises.
Tax base Tax base
= =
future tax deductible Carrying amount

17 18

Example1- Interest receivable Example1- Interest receivable

Example: Interest receivable carried on statement of financial Example: Interest receivable carried on statement of financial
position at $100,000 position at $100,000
 Scenario 1: Interest income is taxed during the period when it is earned  Scenario 2: Interest income is taxed during the period when it is received
 Carrying amount  Carrying amount
 Tax base  Tax base

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Example 2 - Fixed Assets Tax Base of a Liability

 Equipment costing $30,000 was purchased on 1 Jan 20x0.
 Capital allowances were fully claimed in 20x0 Types of Liabilities Tax Base
 Accounting depreciation was computed on a straight line basis over 3 years Future payable Tax base = carrying amount of the liability –
future deduction arising when the liability is
20x0 20x1 20x2 settled
Cost Unearned revenue Tax base = carrying amount of unearned
Accumulated depreciation revenue – revenue that will not be taxable in
Carrying amount = NBV (1) future periods

Cost
Capital allowances
Tax base = tax written down value (2)
Cumulative taxable temporary difference = (1) - (2)

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Tax base of a liability Example 1 - Provision for Warranties

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Deductible on the Basis of Claims Made in the Year of Payment

Identify the future outflow of resource (FOF)  As at end of 20x0, provision for warranties was $1,000

Is the FOF tax deductible in the future? 20x0

Carrying amount
Tax base
Yes No
Deductible temporary difference
Tax base =
Tax base =
Carrying amount -
Carrying amount
future tax deductible
Provision of warranties not recognized for tax purposes in 20x0

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Example 3- Accrued Expense Example 4- Unearned revenue

Unearned revenue carried on the statement of financial position at
Deductible in the Year of Expensing $100,000
 Reporting entity accrues expenses of $100,000 in 20x0 which was  Scenario 1: Revenue is taxed during the period when it is earned
paid off in 20x1
 Expenses are deductible for tax when the expense is recognized

20x0
Carrying amount
Tax base
Cumulative deductible temporary difference

Accounting and tax recognition of the expense are synchronous

25 26

25 26

State the tax base of each of the following

Example 4- Unearned revenue liabilities???
 Scenario 2: Revenue is taxed during the period when it is received  (1) Current liabilities include accrued expenses with a
carrying amount of $1,000. The related expense will be
deducted for tax purposes on a cash basis.
 (2) Current liabilities include interest revenue received in
advance, with a carrying amount of $1,000. The related
interest revenue was taxed on a cash basis.
 (3) Current liabilities include accrued expenses with a
carrying amount of $2,000. The related expense has already
been deducted for tax purposes.
 (4) Current liabilities include accrued fines and penalties with
a carrying amount of $100. Fines and penalties are not
deductible for tax purposes.
 (5) A loan payable has a carrying amount of $1m. The
27
repayment
28 of the loan will have no tax consequences.

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2 las Ch :
XA

Content Current income tax

Amount of income taxes payable (recoverable) in respect
1. Introduction of the taxable profit (tax loss) for a period

2. Permanent differences & temporary differences

3. Tax base
Taxable
4. Accounting
Accounting for
forcurrent
currentincome taxtax
income Tax rate
profit/loss
5. Accounting for deferred income tax
6. Reconciliation and Analytical Check on Tax Expense Debit: Expenses in the net P/L/or
Tax asset Credit: Tax liability/ or
in the Income Statement
Income in the net P/L
7. Accounting for Unused Tax Losses
8. Presentation and Disclosures 30
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Example 1 Example 1: Solution

 Accounting profit before tax: $486million $m

 The firm receives a tax- free $4million grant to employ Accounting Profit 486
more staff. Less grant -4
Plus fine +1
 It is later also fined $1million for environmental misuse, =Taxable profit 483
after illegally discharging chemicals into a river. The fine Tax charge = 483 * 20% = 96,600
cannot be deducted for tax.
I/B DR CR
 Tax rate: 20%
Tax expense I 96,600
Accrual for income tax B 96,600
Tax expense for the period

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Illustration 11.1 Deferred Tax and

Illustration 11.1 Illustration11.1
Illustration 11.1 Deferred Tax and Analytical
Analytical Check on Tax Expense
Check on Tax Expense
 The following information pertains to Company XYZ (Year 1 - (a) Prepare a tax computation to determine the tax payable
20x1): Company XYZ
 Non-deductible tax items: Tax computation for year ended 31 Dec 20x1
 Capital transactions of $15,000 Permannent Temporary
Accounting income 4,000,000 difference
 Repairs and renovations of $20,000
Add / (less):
 Disallowed expenses relating to entertainment, motor vehicle differences Expenses relating to general provisions 180,000
expenses and fines amounted to $14,000 Utilization of general provisions (129,500)
 Dividends of $10,000 were tax-exempt 50,500
 Expenses in respect of general provisions of $180,000 were disallowed Depreciation 80,000
for tax purposes. However, actual claims and utilizations of $129,500 Temporary Capital allowances (708,355)
were deductible (628,355)
differences Expenses relating to deemed capital transactions 15,000
 Depreciation for the year was $80,000,capital allowances claimed
Repairs and renovations 20,000 Permannently
amounted to $708,355. Cost of fixed assets was $1,500,000 Disallowed expenses 14,000 disallowed or
 Net profit before tax was $4,000,000 and tax rate was 22% Tax-exempt dividends (10,000) exempted items
 20x1 was the first year of operations Taxable income 3,461,145
Tax payable at 22% 761,452

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KẾ TOÁN THUẾ TNDN HIỆN HÀNH KẾ TOÁN THUẾ TNDN HIỆN HÀNH
Thí dụ: Trong năm tài chính kết thúc ngày 31/12/20X1,
Lưu ý: công ty A có thông tin như sau:
 Phải trả về thuế thu nhập hiện hành > Thuế đã trả  Chi phí thuế TNDN hiện hành của năm 20X0 được ước
=> Phải trả về thuế thu nhập tính cao hơn thực tế là $30.000
 Phải trả về thuế thu nhập hiện hành < Thuế đã trả  Tổng số tiền nộp thuế TNDN hiện hành trong năm 20X1
=> Phải thu về thuế thu nhập là $390.000 bao gồm $90.000 của năm 20X0 và
 Chênh lệch ước tính và thực tế thuế TNDN năm trước $300.000 của năm 20X1
được điều chỉnh vào chi phí thuế thu nhập hiện hành  Công ty A ước tính chi phí thuế TNDN hiện hành của
của kỳ báo cáo. năm 20X1 là $750.000
Yêu cầu: Thuế TNDN hiện hành phải trả tại ngày
31/12/20X1?
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Hướng dẫn Content

Năm X1: TK phải trả thuế hiện hành
Số dư đầu: 90.000 1. Introduction
Trong năm: 2. Permanent differences & temporary differences
Nợ Phải trả thuế hiện hành: 390.000 3. Tax base
Có Tiền: 390.000 4. Accounting for current income tax
Nợ CP thuế hiện hành: 720.000 (750-30) 5. Accounting
Accounting for
fordeferred
deferredincome taxtax
income
Có Phải trả thuế hiện hành: 720.000
6. Reconciliation and Analytical Check on Tax Expense
in the Income Statement
 Thuế TNDN hiện hành phải trả tại ngày 31/12/20X1?
7. Accounting for Unused Tax Losses

37
8. Presentation and Disclosures
38

37 38

Phân loại chênh lệch tạm thời Temporary differences & deferred tax

Chênh lệch Chênh lệch - There are the differences that:

thuế và
tạm thời (1) Result in amounts being deductible in determining taxable
kế toán
profit/loss in future periods,
(2) When the carrying amount of asset or liability in recovered
or settled
Chênh lệch tạm thời được khấu trừ
- Thus, deferred tax asset will arise when:
(hướng khấu trừ trong tương lai) (1) Carrying amount of asset < its tax base, or
(2) Carrying amount of liability > its tax base.
Chênh lệch tạm thời phải chịu thuế
(hướng nộp thuế trong tương lai)
39
40 Deferred tax asset

39 40

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Temporary differences & deferred tax CLTT được khấu trừ

Hướng thu
hồi trong
-It results in payment of tax when carrying amount of asset tương lai
or liability is settled
- Thus, deferred tax liability will arise when:
(1) Carrying amount of asset > its tax base, or
(2) Carrying amount of liability < its tax base.
Chênh lệch tạm thời được khấu trừ xảy ra khi:
• GTGS tài sản < CSTT của tài sản đó. => ki
Deferred tax liability
41 • GTGS NPTrả > CSTT NPTrả đó 42

Nhan is thut suat Tai san this hoar lai

: > -
DTA
41 42
No 243
C8212

CLTT phải chịu thuế

Temporary differences & deferred tax
Hướng nộp
thuế trong
CA TB TD DT
tương lai
Asset CA> TB + Taxable Liability
CA< TB - Deductible Asset
Liability CA> TB Deductible Asset
phải
CA< TB Taxable Liability
chịu thuế
trả Income received in CA> TB Deductible Asset
advance CA< TB Taxable Liability

Chênh lệch tạm thời chịu thuế xảy ra khi:

• GTGS tài sản > CSTT của tài sản đó.
• GTGS NPTrả < CSTT NPTrả đó 43
44

43
is that hoar laiptra >
- PTL
44

Ezi
N
:
, 347

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Example 1 Example 2
 A company purchased an asset costing $1,500. At  An entity acquired plant and equipment for $1 million on
the end of 20X8 the carrying amount is $1,000. The January 1, 20X4. The asset is depreciated at 25% a year on
cumulative depreciation for tax purposes is $900 and the straight-line basis, and local tax legislation permits the
the current tax rate is 25%. management to depreciate the asset at 30% a year for tax
 what is the tax base of the asset? purposes.
 Measurement & recognition of deferred tax  what is the tax base of the asset (31/12/20X4)?
 Measurement & recognition of deferred tax ( tax rate was 20%)

45 46

45 46

Example 3 Example 4
 A company recently re-valued a non-current
- Company A has profit before tax of $100.000 (2021) & asset from is carrying amount of $300,000 to a
$100.000 (2020). revalued amount of $ 400,000. The revaluation
-Company A purchased an asset (an item PPE) for $5.000 surplus is $ 100,000. The tax rate is 25%.
on the first day of 2020. The useful life of the asset is 2  Required: Calculate the deferred tax liability.
years with zero residual value.
- Tax rule allows a 100% deduction for this type of asset
in the first year.
what is the tax base of the asset?
Measurement & recognition of tax exp (tax rate was 20%)
48
47

47 48

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Ví dụ 5 Ví dụ 6
Tại công ty A có thông tin trong năm 2022 như sau:  Ngày 1/1/2020, công ty X mua 1 TSCĐ với giá
 Ngày 3/1: Mua thiết bị với giá 300, khấu hao 3 năm. 1.800, kế toán theo mô hình đánh giá lại, khấu
Thuế cho đưa hết vào CP năm đầu tiên.
hao 6 năm. Theo quy định của Thuế, tài sản này
 Trong năm Doanh thu chưa thực hiện 50, phân bổ 2
khấu hao trong 3 năm. Giá trị tài sản được đánh
năm (2022 và 2023). Doanh thu chịu thuế tính trên cơ
sở tiền. giá lại vào cuối năm 2020, 2021, và 2022 lần lượt
 Ngày 31/12: Mua BĐSĐT 100, áp dụng mô hình giá trị là: 1.600, 1500, 720.Thuế TNDN 20%.
hợp lí. Quy định của Thuế cho phân bổ tài sản này  Tính toán và ghi nhận các bút toán liên quan đến
trong 5 năm. Biết cuối năm 2023 FV(BĐSĐT) là 110. đánh giá lại tài sản và thuế TNDN hoãn lại cuối
Yêu cầu: Xác định Thuế hoãn lại năm 2022 và năm
năm 2020, 2021, và 2022 .
2023. Biết thuế suất TNDN 20%

49 50

49 50

Bảng tính giá trị tài sản (mô hình ĐGL) Bảng tính Thuế hoãn lại
Năm CA (đầu Khấu CA (cuối CA Chênh DTL Năm CA (ĐGL) Tax Chênh DTL (số DTL DTL do DTL do
năm) hao năm – (ĐGL) lệch ĐGL Base lệch tạm dư) phát ĐGL KH
nháp) thời sinh
trong kỳ

2020 2020

2021 2021

2022 2022

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51 52

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Ví dụ 6 Ví dụ 6
 Bút toán cuối năm 2020:  Bút toán cuối năm 2021:
. Loai tri Khan hao
Khan hao
:
Loai tri
1

.
NO KHLK/COTSC
1
:

300
NO KHLK/CO'TSCD
:

: S 20
.
2 Li do BGL :

Li do BGL
~

.
2 :

N TCA /200CI 100

N /20 OCI
:

TCA : 220
3
. Ghiwhan the hon lai
Ghiwhan the hon lai
:
-
3
. :
: 20 (100 * 20
%
)
NO OCI
: 44
(300 20%)
N Oct
No DTE : 60 #

No DTE : 56
CODTL : 80
CODTL :
100
53 54

53 54

Ví dụ 6 Content
 Bút toán cuối năm 2022:

Go
1. Introduction
. Loai tri Khan hao :

Cook
1

2. Permanent differences & temporary differences

No
L
KHLK/CO'TSC : 375 COPE &

L do AGL 3. Tax base

.
2 :

4. Accounting for current income tax

NO OCI : S20

CopEste
e
No PIL : 85 5. Accounting for deferred income tax
-
COPPE : 40 6.
6. Reconciliation and
Reconciliation andAnalytical
AnalyticalCheck on on
Check TaxTax
Expense
No
(600 375)x 2
DTE-din/45
(
-
in the Income Statement
Expense in the Income Statement

(405 20X)
7. Accounting for Unused Tax Losses
DT 81 x
NO
:

55 100ct : 64 (320 x 20% ) 8. Presentation and Disclosures

56

Co DTE :
17 -
> 85K 20%
55 56
.
3 Cop thank I but toan :
/

No CP thut hon
kai (DTE) :
-

1 + 45 = 28

No DR : 36

100c :
64

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Total tax
income
Accounting profit/loss Tax %
expense Reconciliation and Analytical Check on Tax
57
Profit or loss for the period before deducting tax expense Expense in the Income Statement
Expenses recognized, but non-deductible for tax purposes
Income not recognized, but included tax law • IAS 12 requires a reconciliation between tax expense (income) and
Expenses not recognized, but deductible for tax purposes
Income recognized, but not under tax law accounting profit (loss) in one of the following two forms:
Current – Tax expense reconciliation:
tax
Taxable profit/loss Tax % income • Between the reported tax expense (income) and the theoretical tax expense
expense
(i.e. Accounting profit x current tax rate)

Profit or loss for the period determined in – Tax rate reconciliation:

accordance with applicable tax rules
deffered • Between the average effective tax rate (i.e. Tax expense / Accounting profit)
tax
Temporary income and the applicable tax rate
differences Tax %
Differences expense

Permanent
differences 58

57 58

Tax Reconciliation Tax Expense Reconciliation

 Tax expense = Profit before tax x Current tax rate
 Effective tax rate = tax expense/profit before tax Tax expense in the income statement (without tax loss)
= current tax rate = Tax rate x (Profit before tax +/– Permanently disallowed items (tax-
 The above relationship does not hold if there are: exempt income))
 Permanently disallowed items or tax-exempt income; or +/– (Increase (decrease) in tax rate x Cumulative taxable (deductible)
 Changes in tax rates: temporary differences at the beginning of the reporting period)
Changes in Impact on deferred tax liability Impact on deferred tax asset at
tax rates at the beginning of the year the beginning of the year
Tax expense in the income statement (with tax loss utilization)
Increase • Liability at the beginning of the • Asset at the beginning of = Tax rate x (Profit (loss) before tax +/– Permanently disallowed items
year will be adjusted upwards the year will be adjusted upwards (tax-exempt income))
• Tax expense increases • Tax expense decreases +/– (Increase (decrease) in tax rate x Cumulative taxable (deductible)
Decrease • Liability at the beginning of the • Asset at the beginning of temporary differences at the beginning of the reporting period)
year will be adjusted downwards the year will be adjusted
downwards +/– Tax rate x Unrecognized loss in the year of origination / (tax rate x
• Tax expense decreases recognized loss)
• Tax expense increases
59 60

59 60

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Illustration 11.1 Deferred Tax and Analytical Check Illustration 11.1 Deferred Tax and Analytical Check
on Tax Expense on Tax Expense
(a) Prepare a tax computation to determine the tax payable
Company XYZ
 The following information pertains to Company XYZ (Year 1 - 20x1):
Tax computation for year ended 31 Dec 20x1
 Non-deductible tax items:
 Capital transactions of $15,000 Accounting income 4,000,000
 Repairs and renovations of $20,000
Add / (less):
Expenses relating to general provisions 180,000
 Disallowed expenses relating to entertainment, motor vehicle expenses Utilization of general provisions (129,500)
and fines amounted to $14,000 50,500
 Dividends of $10,000 were tax-exempt Depreciation 80,000
 Expenses in respect of general provisions of $180,000 were disallowed for Capital allowances (708,355)
tax purposes. However, actual claims and utilizations of $129,500 were (628,355)
Expenses relating to deemed capital
deductible transactions 15,000
 Depreciation for the year was $80,000,capital allowances claimed Repairs and renovations 20,000
amounted to $708,355. Cost of fixed assets was $1,500,000 Disallowed expenses 14,000
Tax-exempt dividends (10,000)
 Net profit before tax was $4,000,000 and tax rate was 22%
Taxable income 3,461,145
 20x1 was the first year of operations Tax payable at 22% 761,452
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Illustration 11.1 Deferred Tax and Analytical Check on Tax Illustration 11.1 Deferred Tax and Analytical Check
Expense on Tax Expense

(b) (c) Movement in deferred tax liability

(b)Determine
Determinethethe
deferred tax liability
difference betweenusing carrying
the balance sheet approach
amount and the tax base
Balance, 1 Increase /
Cumulative taxable Jan (decrease) Balance, 31 Dec
Carrying amount Tax base (deductible) temporary
difference Deferred tax = 22% x $577,855
Balance Balance
liability Nil $127,128 = $127,128
= Cost – Accumulated = Cost – Capital
Property, depreciation allowances to date $628,355
31 Dec 20x1
plant and Dr Tax expense 888,580
= $1,500,000 – $80,000 = $1,500,000 – $708,355
equipment
= $1,420,000 = $791,645 Cr Current Tax payable 761,452
Cr Deferred tax liability 127,128
Balance Balance
= Provision – Claims Nil ($50,500)
(d) Perform an analytical check on tax expense
Provisions = $180,000 – $129,500
Tax expense = 22% x ($4,000,000 + $39,000 Permanent differences)
= (50,500)
= $888,580
Net taxable temporary differences $577,855
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Note 1 Note 2
• % tax rate: applicable in the period of recovery/settlement • The initial recognition of a deferred tax asset/liability is
• DTL: Max amount prohibited under IAS 12 Para 15; 24
– A deferred tax liability or asset is never recognized from:
• DTA: recoverable amount (yearly reassessment) xem xet AGL TS
thro whi the hont (a) The initial recognition of goodwill;
ghi whan theou that
J
(b) The initial recognition of an asset or liability that is
suat lig die kied Ahu las - Enough taxable tem. diff. to make (i) Not a business combination; and
up for deductible tem.diff?
- Enough taxable income in the (ii) At the time of the transaction, affects neither
future for allocation? accounting profit nor taxable profit (or tax loss)

~
nhan T thus hon lai
chuyer to :
tang gli
a /
-

L Ainh the chi the hote trong I minh coli

65 66

65 66

Example: Unearned revenue carried on the Non-deductible Expenditures on an

statement of financial position at $100,000 Intangible Asset
• Scenario 3: Revenue is tax-exempt Example:
– Carrying amount 100,000 Revenue will not be taxable in • Development expenditures of $300,000 were capitalized on 1 Jan
Tax base 0 future period. Thus tax base = 20x0:
DTD 100,000 $100,000 – $100,000 = 0 – Amortized over a 3-year period commencing 1 Jan 20x0; and
However, IAS 12 Para 24 prohibits the recognition of this – Was not deductible for tax purpose
deductible temporary differences because it arises on • Assumed tax rate of 20%
initial recognition of the liability => DTD = 0 Balance sheet liability approach 1 Jan 20x0 31 Dec 20x0
Now Future Intangible asset $300,000 $300,000
Accumulated amortization 0 (100,000)
Revenue received Revenue earned Carrying amount $300,000 $200,000
Revenue not taxed Revenue not taxed Tax base 0 0
 Deferred tax asset (not recognized) Cumulative taxable temporary difference $300,000 $200,000
Deferred tax liability 60,000 40,000

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Example 10.8 Non-deductible

Content
Expenditures on an Intangible Asset
• Without the prohibition in IAS 12, the deferred tax liability had to be
1. Introduction
recognized on Jan 20x0 as follows:
Dr Intangible asset 60,000 2. Permanent differences & temporary differences
Cr Deferred tax liability 60,000
• This adjustment will makes the financial statements “less transparent”
3. Tax base
− capitalization of tax expense in asset cost on initial recognition implies 4. Accounting for current income tax
that the initial outlay on the asset goes beyond actual expenditures
− Tax burden arising from the non-deductibility of the actual expenditures
5. Accounting for deferred income tax
is included in the cost of the asset
6. Reconciliation and Analytical Check on Tax Expense
• Thus under IAS 12, the deferred tax liability is ignored
in the Income Statement
7. Accounting
7. Accountingfor
forUnused
income tax
Tax –Losses
some cases
8. Presentation and Disclosures
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69 70

Accounting for Unused Tax Losses and Accounting for Unused Tax Losses
Unused Tax Credits
Does the company have a No
• Deferred tax asset should be recognized to the extent that unused Recognize deferred tax asset in full
history of recent losses?
tax losses and unused tax credits will be utilized to set off probable Yes
future taxable profit Does the company have Yes Recognize deferred tax asset to the extent of losses
other convincing evidence to that may be used to offset the probable future profits
– Deferred tax asset has to pass the test of “probable” likelihood of future support that future profit
exists? that are projected
profits No

Now Future Does the company have Yes Recognize deferred tax asset in full if: Cumulative
cumulative net taxable taxable temporary differences > Tax loss carry-
temporary differences? forward
Loss Taxable profit, hence utilization of loss
Recognize partially to the extent of cumulative
 DTA (if deemed probable)  Current tax payable No taxable temporary differences on hand if: cumulative
 Tax expense  DTA taxable differences < tax loss carry-forward
No deferred tax asset is
recognized

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Accounting for Unused Tax Losses Illustration 11.4-Accounting for tax loss
 The tax computation of XYZ is provided below ($). The amount of cumulative
Example: taxable differences as 1/1/X1 is 100,000$
• Company has tax losses of $1,000,000 20X1 20X2
• Cumulative net taxable temporary differences (CTD) of $600,000 Net profit/loss before tax (200,000) 620,000
• Tax rate is 20% Add depreciation 120,000 120,000
Less capital allowances (300,000) (50,000)
Now Future
Taxable income/loss (380,000) 690,000
Loss and unused capital allowances, 1 Jan 0 (380,000)
CTD $600,000 Reversal, taxable income  $600,000
Net taxable income/loss and unused capital allowances 31/12 (380,000) 310,000
Tax losses $1,000,000 Utilization of loss, taxable income  $600,000
Tax payable at 25% 0 77,500
In view of future effects,
recognize DTA = DTL = $120,000
Determine the DTA and DTL under 2 assumptions:
Tax loss of up to $600,000 can be used to offset the future taxable income 1. Future profitability is probable to fully absorb the tax loss
of $600,000 arising from the cumulative net taxable temporary differences.
2. Future profitability is less than the probable

74
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Illustration 11.4-Accounting for tax loss Illustration 11.3-Accounting for tax loss- solution

Movement in net taxable temporary differences and DTL:

1. Future profitability is probable to fully absorb the tax loss:
20X1 20X2
20X1: DTA= 380,000*25% = 95.000
TTD DTL TTD DTL
20X1 20X2
Balance, 1 Jan (given) 100,000 25,000 280,000 70,000
TTD DTL DTA TTD DTL DTA
Change 180,000 45,000 (70,000) (17,500)
Balance, 1 Jan 100,000 25,000 0 280,000 70,000 (95,000)
Balance, 31 Dec 280,000 70,000 210,000 52,500
Change 180,000 45,000 (95,000) (70,000) (17,500) 95,000
Balance, 31 Dec 280,000 70,000 (95,000) 210,000 52,500 0
31/12/X1 31/12/X2 Dr- Curr Tax Exp:77,500
Dr- DTE: 45,000 Cr- Tax payable : 77,500
Cr- DTL: 45,000
Dr- DTL: 17,500
Dr-DTA: 95.000 Dr- DTE: 77,500
Cr- DTE: 95,000 Cr- DTA: 95,000
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Illustration 11.4-Accounting for tax loss- solution Illustration 11.4-Accounting for tax loss- solution

2. Future profitability is less than the probable Future profitability is probable Future profitability is less than
to fully absorb the tax loss: the probable
20X1: DTA= DTL = 70.000
(tax expense/income) (tax expense/income)
20X1 20X2 20X1 (50,000) (25,000)
TTD DTL DTA TTD DTL DTA 20X2 155,000 130,000
Balance, 1 Jan 100,000 25,000 0 280,000 70,000 (70,000)
Total 105,000 105,000
Change 180,000 45,000 (70,000) (70,000) (17,500) 70,000
Balance, 31 Dec 280,000 70,000 (70,000) 210,000 52,500 0
31/12/X1 31/12/X2 Dr- Curr Tax Exp: 77,500
Dr- DTE: 45,000 Cr- Tax payable : 77,500
Cr- DTL: 45,000
Dr- DTL: 17,500
Dr- DTA: 70,000 Dr- DTE: 52,500
Cr- DTE: 70,000 Cr- DTA: 70,000
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Content Presentation and Disclosures

• Major disclosure items (IAS 12:77 – 88) includes:
1. Introduction
– Tax expense (income) relating to ordinary activities
2. Permanent differences & temporary differences
presented on the face of the income statement
3. Tax base – Aggregate current and deferred tax relating to items that
4. Accounting for current income tax are charged or credited directly to equity
5. Accounting for deferred income tax – An explanation of the relationship between tax expense
and accounting profit
6. Reconciliation and Analytical Check on Tax Expense
– Amount of deductible temporary differences, unused tax
in the Income Statement
losses and unused tax credits for which no deferred tax
7. Accounting for Unused Tax Losses asset is recognized in the statement of financial position
8.
8. Presentation
Presentationand
and Disclosures
Disclosures
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Tax Effects of Other Comprehensive

Income and Items Taken Directly to Equity
• Tax attributable to other comprehensive income and
items credited or charged directly to equity is deducted
from the related item and disclosed separately
• Amount taken to equity will be on a “net of tax” basis
– Tax relating to the revaluation surplus is not taken to the
income statement but is deducted from the revaluation
surplus in other comprehensive income

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