INCOME TAX 6.

53

FULL PFRS, PRFS FOR SMEs

& PFRS FOR SEs
INCOME TAX
•IAS 12 provides that income tax includes all
domestic and foreign taxes that are based on
taxable profits.

•Income tax also includes taxes, such as

withholding taxes, that are payable by a
subsidiary, associate or joint venture as
distributions to the reporting entity.

•FULL PFRS AND THE AMENDED PFRS

FOR SMEs ARE NOW THE SAME IN THE
MATTER OF ACCOUNTING FOR INCOME
TAX.

2
 ACCOUNTING POLICY
Full PFRS, PFRS for SME
Deferred income taxes method
• provided for all temporary differences and the
carryforward of unused tax losses, with a few
exceptions such as the initial recognition of goodwill and
the outside basis differences (that is, temporary
difference arising from investments in subsidiaries,
branches, joint ventures and associates) from foreign
investments that are essentially permanent in duration.
PFRS for SE
Policy choice:
1. Taxes payable method – recognize a current tax
liability for the tax payable on taxable income for the
current and past periods. In other words, if the taxes
payable is followed the entity is not required to recognize a
deferred asset or liability; or
1. Deferred income taxes method – recognize a deferred
tax asset for future deductible amount and deferred tax
liability for future taxable amount in addition to current
liability.
3
RECOGNITION OF CURRENT TAX
ASSET(LIABILITY)
Full PFRS, PFRS for SME PFRS for SE

• shall recognize a current tax liability for

tax payable based on taxable profit for
the current and past periods. This is
classified as current liability.

• If the amount already paid for the current

and prior periods exceeds the amount Same as Full PFRS and PFRS for SME
payable for those periods, the excess is (Section 23, paragraph 403)
recognized as a current tax asset.
Actually, a current tax asset is a prepaid
income tax and shall be classified as
current asset.

4
MEASUREMENT OF
CURRENT TAX ASSET (LIABILITY)
Full PFRS, PFRS for SME PFRS for SE

• shall measure its current tax asset and

liability using the tax rates and laws that
have been enacted or substantively Same as Full and PFRS for SME
enacted at the reporting date. (Section 23, paragraph 404-405)

• Current tax asset and current tax liability

shall not be discounted.

5
DEFERRED TAX ASSET
1. The amount of income tax recoverable in future periods with
respect to:
a. a deductible temporary difference, and
b. the carryforward of unused tax losses or unused tax credits

2. Classified as NON-CURRENT ASSET

DEFERRED TAX LIABILITY

1. The amount of income tax payable in future periods with respect
to a taxable temporary difference.

1. Classified as NON-CURRENT LIABILITY

 TAX BASIS
Full PFRS, PFRS for SME PFRS for SE
Tax basis is the measurement under applicable tax law of an asset,
liability or equity instrument.

• The tax basis of an asset equals the amount that would have
been deductible in arriving at taxable profit if the carrying
amount of the asset has been recovered through sales at the
Same as Full and PFRS for SME
end of the reporting period.
(Section 23, paragraph 411-412)
• The tax basis of a liability equals its carrying amount less any
amounts deductible in determining taxable profit (or plus any
amount included in taxable profit) if the liability had been settled
at the end of the reporting period.

7
 TEMPORARY DIFFERENCES
Full PFRS, PFRS for SME PFRS for SE

Temporary differences are differences between the tax

basis of asset or liability and its carrying amount in the
financial statements that will result in a taxable or
deductible amount when the carrying amount of the asset
or liability is recovered or settled. Same as Full and PFRS for SME
(Section 23, paragraph 414)

8
RECOGNITION OF DEFERRED TAX
ASSET (LIABILITY)
Full PFRS, PFRS for SME PFRS for SE
An entity shall recognize:

a) deferred tax liability for all temporary

differences that are expected to
increase taxable profit in the future;

a) b. a deferred tax asset for all Same as Full and PFRS for SME
temporary differences that are (Section 23, paragraph 415)
expected to reduce taxable profit in
the future; and

a) a deferred tax asset for the

carryforward of unused tax losses
and unused tax credits

9
MEASUREMENT OF DEFERRED TAX
ASSET (LIABILITY)
Full PFRS, PFRS for SME PFRS for SE
• shall measure its deferred tax asset and
liability using the tax rates and laws
that have been enacted or
substantively enacted by the
reporting date and expected to apply in
the period when the asset is recovered, Same as Full and PFRS for SME
or the liability is settled. (Section 23, paragraph 415)

• Deferred tax asset and deferred tax

liability shall not be discounted.

10
 OFFSETTING
Full PFRS, PFRS for SME PFRS for SE

• shall offset current tax asset and current tax liability

when all of the following conditions are present:

a. When the entity has a legally enforceable right to set off

Same as Full and PFRS for SME
the amounts.
(Section 23, paragraph 424)
b. When the entity intends either to settle on a net basis
or to realize the asset and settle the liability
simultaneously.

11
 WITHHOLDING TAX ON DIVIDEND
Full PFRS, PFRS for SME PFRS for SE

• tax relating to dividends that is paid or payable to

taxation authorities on behalf of the shareholders
(for example, withholding tax) is charged to equity as Same as Full and PFRS for SME
part of the dividends. (Section 23, paragraph 421)

12
 DISCLORES
Full PFRS and PFRS for SMEs
Requires the following disclosures:
✔ current tax expense (income);
✔ any adjustments of taxes of prior periods amount of deferred tax
expense (income) relating to the origination and reversal of
temporary differences;
✔ amount of deferred tax expense (income) relating to changes in
tax rates or the imposition of new taxes;
✔ amount of the benefit arising from a previously unrecognized tax
loss, tax credit or temporary difference of a prior period;
✔ write down, or reversal of a previous write down, of a deferred
tax asset; and
✔ amount of tax expense (income) relating to changes in
accounting policies and corrections of errors.
 DISCLORES
PFRS for SEs
If taxes payable method is adopted, an entity should disclose the
following:
1. current tax expense (income);
2. any adjustments recognized in the period for current tax of prior
periods; and
3. the amount and expiry dates of unused tax credits

If deferred income tax method is selected, an entity should

disclose the following:
1. current tax expense (income)
2. any adjustments recognized in the period for current tax of prior
periods;
3. any adjustments of taxes of prior periods amount of deferred tax
expense (income) relating to the origination and reversal of
temporary differences;
4. amount of deferred tax expense (income) relating to changes in
tax rates or the imposition of new taxes; and
5. the amount (and expiry date, if any) of deductible temporary
differences, unused tax losses and unused tax credits for which
no deferred tax asset is recognized in the statement of financial
position.
THANK YOU!

GRANADA, MARY GRACE M.

GURADILLO, CYRES ANGEL J.

ACC226 - 3566