Deferred Tax (IAS-12)

What is Timing Difference?

Timing difference is the difference between Taxable income and Income as per P/L Account
which is time being in nature and will get reversed in subsequent period.

For example:

a) Revenues or gains that are taxable before or after they are recognized in accounts.
b) Expenses or losses that are deductible before or after they are recognized in accounts.
c) Preliminary expenses is debited entry in P/L account but is allowed entirely in specific no
of years, that is it is amortized over the number of years but finally it is allowed but in
parts in every years, say 5 years. So Taka 100 (Preliminary expenses) debited entirely in
P/L account but is allowed in 5 equal installments for 5 years that is Taka 20 every year.
At the end of 5 years. Entire taka 100 is allowed.

What is Permanent Difference?

Permanent difference is the difference between taxable income and Income as per P/L
Account which is permanent in nature and will never reverse in subsequent years.

In short, taxable income is calculated in accordance with the Tax Laws In some
circumstances the requirements of these laws to compute taxable income differ from the
accounting policies applied to determine income as per P/L Account.

NB: Permanent difference does not result in deferred Tax asset or Liability.

Some important Definitions

Differences between the carry ing amount of an asset or liability in the s tatement of financial position and its tax bases
Differences between the carry ing amount of an asset or liability in the s tatement of financial position and its tax base

Tax Base The tax base of an asset or liability is the amount attributed to that
asset or liability for tax purposes.
Temporary Differences Differences between the carrying amount of an asset or liability in
the statement of financial position and its tax bases.
Taxable Temporary Temporary differences that will result in taxable amounts in deter-
Differences mining taxable profit (tax loss) of future periods when the carrying
amount of the asset or liability is recovered or settled.
Deductible Temporary Temporary differences that will result in amounts that are deductible
Differences in determining taxable profit (tax loss) of future periods when the
carrying amount of the asset or liability is recovered or settled.
Deferred Tax Liabilities The amounts of income taxes payable in future periods in respect of
taxable temporary differences.
The amounts of income taxes recoverable in future periods in
respect of:-
Deferred Tax Assets
1. Deductible temporary differences
2. The carry forward of unused tax losses, &
3. The carry forward of unused tax credits
 Deferred Tax (IAS-12)

Current tax for the current and prior periods is recognized as a

Current Tax: liability to the extent that it has not yet been settled, and as an asset
to the extent that the amounts already paid exceeds the amount due.
The benefit of a tax loss which can be carried back to recover
current tax of a prior period is recognized as an asset.

Current tax assets and liabilities are measured at the amount

expected to be paid to (recovered from) taxation authorities, using
the rates/laws that have been enacted or substantively enacted by the
balance sheet date.

Identification of Deferred Taxes

Balance Sheet Carrying Amount VS Tax Base Results in Deferred Tax Asset / Liability
Asset Carrying Amount > Tax Base Deferred Tax Liability. (DTL)
Asset Carrying Amount < Tax Base Deferred Tax Asset. (DTA)
Liability Carrying Amount > Tax Base Deferred Tax Asset. (DTA)
Liability Carrying Amount < Tax Base Deferred Tax Liability. (DTL)

Reconciliation of Book income to Tax income

Particulars Taka
Income Before Tax (as per Book) ****
(+/- ) Temporary Differences **/(**)
(+/-) Permanent Difference **/(**)
= Taxable Income ****
* Apply Tax Rate Tax (%)
Current tax expense/ Taxable income ****
(+ ) Deferred Tax Expense / Benefit ****
Total Tax Expense ****