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IAS 12 - INCOME TAX

 Ins -
12
Dividened Receivables
A. CO profit
> Afc 400,000×201 .
= 80,000
less : Dividend PGL 60.000
Sales xxx Income ( 100,000 ) cash 60,000
C. O S-
xxx PGL 20,000
Taxable Profit
"

Gross Profit 300,000 300,000×201=60,000 D.TL 20,000

Add Dividend Income
: 100,000 t,
PBT 400,000 Current tax

tax Exp (60,000+20,000)

PAT 320,000 A -
CO 5.1 .

(Declared Dividend)
Div
Receivables 01000,00 B W -

, ooo
Tax on dividened
,

recievable PEEL 20,000 R E

-

xxx

DTL 20,000 Div Payable xx

Income 200,000×207 . = 40,000 Tax on Dividened when recieved

Expense ( 100,000) - 60000 tax paid whereas 20000 is our Deferred Tax Liability
- 20000 is tax on dividened
100,000 XZOY . = 20,000

- Expenses sa humey Tax Benefit milta hai

Q2 Warranty Provision Profit
> All 200,000×201 .
= 40,000
Add :
Warranty PGL 60,000
Sales xxx Provision 100,000 Cash 60,000
C. O S -
xxx PGL 20,000
Taxable Profit
"

Gross Profit 300,000 300,000×201=60,000 D.TL 20,000

less :
Warranty Provision (100,000) t,
PBT 200,000 current tax

tax Exp (60,000-20,000)

PAT 120,000 A -
CO 5.1 .

PEEL 100,000 B Lo -

Prov for warranty 100,000

D.TA 20,000 R E
- Warranty provision Expense (add back) xxx
-

- But tax paid full, next year get Tax Benefit (DTA) PGL 20,000 Div Payable xx

- Next year we will deducded it

Difference / There is difffernece in Accounting World and Tax World

Har difference ki waja sa Deferred Tax nii hota
 Q3 Grant Income > All Profit 400,000×201 .
= 80,000
less : Grant Income - No tax on Grant Income
Sales xxx (, 100,000 ) - Its a Permanent Difference
C. OS xxx

Taxable Profit
"

Gross Profit 300,000 300,000×201=60,000

Add: Grant Income 100,000 t,
PBT 400,000 current tax

tax Exp 160,0001

PAT 340,000

Video 2
Difference I -

data:@ I
Timing Difference
,
Permanent Difference
Temporary Difference
① Dividend Income ① Govt
grants
② Warranty Provision ① Political Donations
① Inventory Damage LIAS 2) -

① Finest Penalties .

④ IAS-38 ( capitalized Dev cost) ④ Goodwill in Business Combination ,

⑤
Tax Accelerated because tax authorities treat
Depreciation ,

Parents Investment
Issue cost ( loan Notes) in
subsidiary
Investment in shares
⑦ Convertible Loan Notes as .

⑧ IAS 19
-

⑨ IFRS - 2

⑤ leasing (IFRS -16)

 Loss 300 :

Inventory
'

cost = 1000
N RY = 700

In of Prudence but tax

→
Accounting we Book this loss
immediately now because
department
Difference)
year (Timing
allows this next when sell this asset next
year we .
.

Capitalized Dev Cost.

Amortization
→
Is I I Exp .

I -
I
Asset

In
→
Accounting we book this development cost as an Asset Now and will.

ammo rtize in Future .

But tax department allows Full development cost now -

Again
this is
timing difference -

Tax Accelerated
Depreciation
cost: 3000
deep 1000 deep tooo deep 1000
l l
O l 2 3

life =3
years
.

So In
→
Accounting ,
we Book this depreciation over the
life of Asset .

(means
years)
3 .

→ But some time tax dept allows full tax depreciation Now .

"
Tax man will
Allow Full Now
 Issue Cost

l l l

(
O

✓
l 2 3 4

Issue cost = $10,000

→
In
Accounting this Issue Cost , will be spread ed over the life of Loan .

→ But tax dept allows

complete Issue cost
,
now ( Its a
timing difference )
( Temporary difference)

Types of T D .

Taxable TD
↳ Because of which Future Taxable Profits Increases .

Dividend
e.g
→ Taxable TDs are
multiplied with tax rate to calculate D.TL .

Deductable TD
Because of which future Taxable Profit decreases .

g Provisions
e. .

→ Deductable TDs are

multiplied with tax rate to
calculate D.TA .

SOFP APPROACH
3 columns

C. V Tax Base T D -

Asset T t, Taxable T D -

Asset ti T Deductable TD
'
T Deduct able TD
Liability t, -

t, Taxable T D
liability 4 -
 e.g
# 1
Inventory
cost 1000
-_

NRV = 700

PGL 300 C V-

Tax Base TD

Inventory 300

D- TA 60

PGL 60
Inventory -19,0 100,0
300 (deductible TD)
X 207 .

60 ( DTA)

Provision
e.g
#2 Warranty

Prov 10,000

PEEL 10,000 C V-

Tax Base TD

Prov for warranty 10,000

10,000 (deductible TD)
D- T Provision
104000 I
-
A 2000

PGL 2000 X 207 .

2000 ( DTA)

e.gl#DividendsDivReT0 0
PGL 10,000
C V -

Tax Base TD

1¥ 10,000 ( Taxable TD)

D. 7.2 2000
Dividend
Receivable
10¥00 I, X 207 .

→
2000 )
t L .
 Bettered Tax on Revaluation
Revalutation tax will be paid when asset sold, so its a DTL
PPGE 10,000 Div Rec 10,000
Revenue 10,000 PEEL 10,000
Rev Reserve 2000 PGL 2000 CV
-
TB TD
D.TL 2000 D TL
-
2000
Tax
T -

TD

Tax dont want

→ We went to tax dept to pay tax on this gain -

dept said we
any tax Now,
Taxable TD
But will
charge tax in disposal its
future ou have to tax in
we means we
pay future a
-

, ,

cost -
- 1000
1200 deep =
12004
l

deep 31 Dec 08
Deferred Tax reversed
l Jan 08 -
- 200 31 Dec 09
life 5 NBV 800
yrs
-
- -
-

Mill -
-
1200 Dep Exp 300

PPGE 400 Revalued .

400 PPGE 300
Rev Res 400 BY D.TL 20

Rev Res 80 PGL 20

DTL 80 Rev Res 80

RE 80
This entry will cancel extra effect of dep exp on asset. (100-20 = 80)
320
=
80 Iaunum
4 - In this year, the asset value will decrease with extra dep of 100
- so DTL will decrease by 20 against P&L, because of matching principle.
- Upward revlaution so we have to
pay tax in future. (DTL)
- DTL will arises against Rev. Reserve,
because of matching Principle.
 IFRS -
16 with IAS - 12

LesseBooks
In finance lease
Accounting all leases are now .

RT U
-
-
xxx

Obligation xxx

→ Depreciation Expense
→ Interest Expense .

Tax department
↳ Treats all leases as
operating leases
→ No Asset

→ No
liability
rental
→
They allow complete as an
expense
.

OI P V of Mrl P
.
-
= 10,000 Question 1
Lease Rentals =
30001 annum in arrears .

Interest Rate Implicit in lease =

10%4 annum
lease term to life of Asset 10
years
=

Tax Rate = 201 .

Reg Deff Tax Implication

: For Yr 't = ?

Solution '
A S -

Date Rentals F. C Din Ob Bal Ob .

31 Dec 08

R T U-
.
10,000 I Jan 08
-
- -
10,000 C V
-
Tax Base T D
-

Obligation 10,000 31 Decoy 3000 1000 2000 8000 R TU

-
9000
I
9000 (Tax TD)
TD)
Obligation Sooo 8000 (Ded
Dep = 10,000 1000 ( Tax TD)

yrs x 201.

PGL 200 200 (D -

T L
-

)
D T L-
-
200
OI P V of Mrl P
.
-
= 20,000 Question 2
Lease Rentals =
50001annum in arrears .

Interest Rate Implicit in lease =

8%4 annum

lease term A life of Asset 10

years
=

Tax Rate = 301 .

31 Dec 08
Reg Deff Tax Implication
: For Yr 't = ?
-
A. s C V
-
Tax Base TD

Solution Date Rentals F. C Din Ob Bal Ob .

R TU
-
18000 - 18000 (Tax T D) -

' Jan 08
-
- -

20,000 Obligation 16600 -

l6600(DedT PEEL 420

5000 TD) DT L 420
PPGE 20,000 1600 3400 16,600 1400 ( Tax
-
-

31 Decoy

L O -
20,000 X 301 .

420 (D. TL)

deep = 20000
-
=
2000 (annum

10
yrs

Deff Tax on URP Video 3

cost =
200

p.CO - P Co. already paid tax on this profit of 300,

sold for
500 Not sold so in future we get Tax Benefit (DTA).
3rd
→
Party
S.co

Inventory 500

(300 )
-

200

In of Tax dept this is

→
Eyes a sale and
they collect tax from Pio
immediately . But From the
group point of
view

this unrealized this

profit
profit is .
Means in
group
book . will be booked in
future .
But when we
go
to tax
dept in
future they wont
charge any tax .
( Deductible )
TD

C. O S -
300 C. N Tax Base TD

Group inventory 300 ( Ded TD)

DT A 60
Inventory 201,0 500 300
- -
X 20-1 .

PEEL 60 60 ( D TA-

)
 Deff Tax on unused Tax losses
Important area
Taxable
unused tax loss = (50,000) Profits
,

D.T A .
10,000
- In some country there is expire date of losses.
PGL 10,000
- This entry is only made when it is probable that in future there is a profit.
- If losses continues for long period then no entry will be made.
Above
Entry be made if - Entry only made when it is problable that in future there is a PROFIT.
→ will
only :

When it is that these losses will set future taxable profits

probable off
1 .
.

2- If co in loss but reason of loss is Identified and Removed Then Auditor allow deffered Tax Asset
may
.
. .

When co tax
planning
has
3
opportunities available
. .
.

0 Q CATE

Cannot book DTA in this year

Answer A deffered tax asset should be for deductable
.

recognised temporary differences ,

unused tax losses and unused tax credits to the extent
that it is probable that taxable profit will be available
against which the deductible
temporary differences can be utilised The
.

recognition
of deferred tax asset on losses carried forward does not seem to be in accordance with 1 As 12 Income Taxes .
Cate is not able to
provide
evidence that which the unused
convincing sufficient taxable
profits will be
generated against tax losses can be
offset
.

The improved performance in 2010 would not indicative of future good performance as Cate have

⑤
suffered a net loss before tax had it not been for the non-operating gain.
 IFRS -
2 with I. As -12

Equity settled SBP

Accounting world
↳ we use Fair Value of option at the
grant date .

Tax World

↳
They dont allow
anything
now .

They will allow in Future a

they will

REAL BENEFIT
'

Intrinsic Value
'
allow to
Employee and the Real
Benefit is

I. V =
M P
'
. -
Ex .

price

Caselli
l l l l
0 I 2 3

Accounting
5000
Expense
Tax Allowance Exp = 4000×201 .
= 800 ( D. T A)
-

P GL 5000
SBPR 5000

D. T A
-
800

PGL 800

Case#e2 JET

Accounting Exp 5000

Tax Allowance 5000×201 f D T A)

Exp 1000 - -
=

PGL 5000 DT A
-
-
1000

SBPR 5000 PGL 1000

Corset ( Import)
-
Yr I

Accounting Expense 5000

Tax Allowable Expense 6000×20-1 . = 1200 (D T A
-
-

)
D.T A - 1000
Yr 2

PGL 5000 PGL 1000

SBPR 5000 DIA 2800

PGL
1200
Deff Taxfyrz )
D.T A - 2000

PGL 1000 RE 800

RE 200
b) d 1000

RE 800
PEEL 2000
¥ F V of option -3
-
-

I.v=z I. vis 8 -

Cfd 3800
l l l
2
# of Ee -
- l l

vesting period 2
yrs vesting Yrz Cumulative
-
-

of options 5000 ↳ 2. 5000×3 $15000

#
yrs stay Ace Exp
-_ =

Allowance 5000×3.8=19000×201 3800 (D T A )

Exp
- -
. =
-

Excess
working # I = 4000

Accounting Exp 5000×8312=7500 11201 .

Tax Allowance Exp 5000×2×21=5000 Transferred #e = 800 (DTA)

11201 .

1000
DIA

Evidence

Paul 15000

SBPR 15000

DTA 3800
PGL 3000
RE 800
¥ FV at
Rate
grant
- $6
I. V -
-
$5 I. V -
- $12
l l l
l 2
O

# of 10,000
option =

# of Ee = I

vesting Period 2
yrs
-
-

Tax Rate = 307 .

Old Kit Questions (Try)

Q Chameleon .

(parte) Exam
Q Ethan part kit
Q .
Panel (Deff Tax)

- Important Points to solve this question

D.T A xxx
- No need for this for DTL entry
.

PGL xxx

↳ It is probable that co will

get Future Economic
Benefit
-
-

① Any Future changes

in D.TA OR D.TL will be
adjusted Respectively ,

p.co S.co Prospectively

DTA DT L - -

5000 5000 - cannot offset each other because they are different entities.
- In consolidate books, both can't offset each other.
- Book DTA 5000 separately and DTL 5000 Separately.
this D T A and D.e. L
→
They can offset
- .

in Consolidated Books .