Financial Income Taxable Income

-it uses accrual method of Issue regarding differences in income -it uses cash method of
accounting accounting

PAS 12
ACCOUNTING FOR INCOME TAX

Nondeductible expenses are added

Is the
back to the accounting income, while YES
difference due
nontaxable revenues are deducted to
to a
arrive at the accounting income
permanent
subject to tax.
difference?

NO

Temporary difference

YES Is financial NO
income higher
than taxable
income?

The difference will result to a future

The difference will result to a future deductible amount (FDA) or
taxable amount (FTA) or taxable deductible temporary difference
YES Is carrying NO
temporary difference (TTD). It is a (DTD). It is an addition to the
amount of
deduction to the accounting income asset is higher accounting income subject to tax in
subject to tax in getting the taxable than its tax getting the taxable income. This gives
income. This gives rise to a deferred base? rise to a deferred tax liability. (DTL =
tax liability. (DTL = FTA/TTD*Future FTA/TTD*Future enacted tax rate)
enacted tax rate)

YES Is carrying NO
amount of
liability is
higher than its
tax base?

Accounting Income xx
Add/(Deduct): Permanent Differences
Add: Nondeductible Expenses xx
Deduct: Nontaxable Revenues (xx)
Accounting Income Subject to Tax xx * Tax Rate= ITE
Add/(Deduct): Temporary Differences
Add: Increase in FDA xx * Tax Rate=DTE/DTL
Deduct: Increase in FTA (xx) *Tax Rate=DTB/DTA
Taxable Income x x * Tax Rate=CTE/CTL