PAS 12 INCOME TAXES

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 ACCOUNTING PROFIT VS.
TAXABLE PROFIT

 The varying treatments of economic activities between the PFRSs

and tax laws result to permanent and temporary differences.
Conceptual Framework & Acctg. Standards (by: Zeus Vernon B. Millan) 2
PERMANENT DIFFERENCES
 Permanent differences are those that do not
have future tax consequences.
 Examples:
a. Interest income on government bonds and
treasury bills
b. Interest income on bank deposits
c. Dividend income
d. Fines, surcharges, and penalties arising from
violation of law
e. Life insurance premium on employees where
the entity is the irrevocable beneficiary
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Conceptual Framework & Acctg. Standards (by: Zeus Vernon B. Millan)

TEMPORARY DIFFERENCES
 Temporary differences are those that have future
tax consequences. Temporary differences are
either:
a. Taxable temporary differences – arise, for
example, when financial income is greater than
taxable income (FI > TI) or the carrying amount
of an asset is greater than its tax base (CA asset
> TBase) .
b. Deductible temporary differences arise in case
of the opposites of the foregoing. (FI < TI), (CA
asset < TBase)
 Taxable temporary differences result to deferred
tax liabilities while deductible temporary
differences result to deferred tax assets. 4

Conceptual Framework & Acctg. Standards (by: Zeus Vernon B. Millan)

DEFERRED TAXES
 If the increase in deferred tax liability exceeds
the increase in deferred tax asset, the difference
is deferred tax expense. If it is the opposite, the
difference is deferred tax income or benefit.
 A deferred tax asset is recognized only to the
extent that it is realizable.
 Deferred taxes are measured using enacted or
substantially enacted tax rates that are applicable
to the periods of their expected reversals.
 Deferred tax assets and liabilities are not
discounted.
 Deferred tax asset and liabilities are presented as
non-current.
Conceptual Framework & Acctg. Standards (by: Zeus Vernon B. Millan) 5