IAS 12 Taxation

IAS 12 Taxation
Chapter 8
Presented by: Meloney Fourie

INTRODUCTION
IAS 12 deals with the accounting for all income

taxes:
➢ Current tax
➢ Deferred tax
➢ Capital gain tax
➢ Withholding taxes
2
CURRENT TAX
= amount of income taxes payable or

recoverable in respect of the taxable profit or
tax loss for a period
3
CURRENT TAX
Dr. Tax expense (P/L)
Cr. Current tax liability (SFP)
• Liability - to extent unpaid

• Amount paid > Amount due = Asset
• Extended credit granted by taxation authorities =
Government grant IAS 20
• Interest & Penalties = not part of tax expense (IAS 12)
4
CURRENT TAX Ex 8.1
01/01 Amount due at end of prior year = R9 840

30/06 First provisional tax payment = R7 500
18/07 Final payment of PY assessment (including interest of
R3 690 and penalties of R5 500 for late submission) = R14
600
31/12 Second provisional payment = R9 350
31/12 Provision for CY tax = R38 635
5
CURRENT TAX Ex 8.1
30/06 First provisional tax payment = R7 500
Date Description Dr Cr
R R
30/06 Creditor: SARS (SFP) 7 500
Bank (SFP) 7 500
6
CURRENT TAX Ex 8.1
01/01 Amount due at end of prior year = R9 840

18/07 Final payment of PY assessment (including interest of
R3 690 and penalties of R5 500 for late submission) = R14
600
R R
Finance cost (P/L) 3 690
Other expenses(Penalties) (P/L) 5 500
Income tax expense (P/L) 4 430
Bank (SFP) 14 600
Interest and
penalties
NOT part of
ITE
7
CURRENT TAX Ex 8.1
31/12 Second provisional payment = R9 350
R R
Bank (SFP) 9 350
8
CURRENT TAX Ex 8.1
31/12 Provision for CY tax = R38 635
R R
31/12 Income tax expense (P/L) 38 635
Creditor: SARS (SFP) 38 635
9
CURRENT TAX
Company
Profit before tax xxx
Permanent differences Deduct before xxx
you x with
Temporary differences 28%!!
xxx
Capital gains tax inclusion xxx
Less: Prior year assessed loss (xxx)
= Taxable income/(loss) xxx
X 28% (only if taxable income)

= Tax expense xxx
10
CURRENT TAX Used for
Company tax recon
Permanent differences:
Non-taxable income (xxx)
Dividend income
Profit on sale of PPE
Non-deductible expenses + xxx
Goodwill impairment
Depreciation on asset that no allowance granted
Donations without S18A certificate
Fines and penalties
Other expenses said not allowed as tax deduction
11
CURRENT TAX
Company
Temporary differences:
Add back: Depreciation
Deduct: Wear-and-tear
Deduct: BCC – tax deductible
Add back: Interest expense – lease (lessee)
Add back: Depreciation on asset
Deduct: Actual pmt – lease (lesse)
12
CURRENT TAX
Company
Revenue received in advance (L):

- Add movement if increased yr on yr
- Deduct movement if decreased yr on yr
Prepaid expense (asset):

- Deduct movement if increased yr on yr
- Add movement if decreased yr on yr
13
CURRENT TAX
Company
Profit before tax xxx
Permanent differences Deduct before xxx
you x with
Temporary differences 28%!!
xxx
Capital gains tax inclusion xxx
Less: Prior year assessed loss (xxx)
= Taxable income/(loss) xxx
X 28% (only if taxable income)

= Tax expense xxx
14
CLASS WORK
•IAS 12.1 a
•IAS 12.5 only the tax comp
•IAS 12.6
•Test 1 2016
15
DEFERRED TAX
Future tax
consequences of future
recovery/realisation of
assets and future
settlement of liabilities
16
Reasons deferred tax arise
Expenses are recognised in the P/L before they are

required to be recognised by the taxing authority
Revenue is subject to taxes before it is taxable in P/L
The tax base or tax rules for assets and / or liabilities are
different
17
What is deferred tax?
An accounting concept that takes account of timing

differences between tax actually payable as a result of a
transaction and the recognition of the tax charge for
accounting purposes.
18
Example
As an example consider a company that has purchased plant
and machinery for R100M. The tax system permits a capital
allowance of 40% in respect of the first year and 20% in
each of the subsequent three years (Section 12 C of the
Income Tax Act). The company uses a depreciation rate of
20% per annum because the plant and machinery has an
estimated useful life of five years. Taxable income/profit
before plant and machinery allowance/depreciation in the
first year is R150M.
19
Example
Tax
Taxable income R150M
Allowance (R40M)
Taxable income R110M
Tax @ 28% R30.8M
Accounting R5.2
Profit R150M M
Depreciation (R20M)
Profit before tax R130M
Tax @ 28% R36M
Profit after tax R 94M
20
Example
The actual tax payable is R30.8M but the accounting tax
charge should be R36M based on the accounting profit.
To get to the R36M an amount of R5.2M is raised as a
deferred tax expense and as a deferred tax liability in the
balance sheet. The liability will begin reversing in year
four.
Deferred tax need not always be a liability, it can also be
an asset.
21
DEFERRED TAX ASSETS vs LIABILITY
Defer tax liability = recovery of CA of the

asset/settlement of the liability would result in larger
future payments.
Defer tax asset = recovery of CA of the asset/settlement

of the liability would result in smaller future payments.
22
DEFERRED TAX ASSETS vs LIABILITY
Asset: NB!!!
CA > TB = Liability
CA < TB = Asset
Liability:
CA > TB = Asset
CA < TB = Liability
23
STEPS TO ACCOUNT FOR DEFERRED TAX
 Calculation of temporary differences

 Exemptions from the recognition of deferred tax
 Limitation for the recognition of deferred tax assets
for deductible temporary differences and unused tax
losses or credits
 Consideration of the appropriate tax rates (and tax
laws)
 Recognition of deferred tax income or expenses
24
STEPS TO ACCOUNT FOR DEFERRED
TAX
 Calculate temporary differences
 Exemptions
 Limitations on DT-Asset
 X ?? tax%
 Journal
25
 CALCULATION OF
TEMPORARY DIFFERENCES
Temporary differences (TD) =
DIFFERENCE between the CARRYING AMOUNT of an
asset or liability and TAX BASE
Amount attributable to that asset/liability for tax purposes
TD = CA - TB
26
 CALCULATION OF
TAX BASE
☺ Tax base of an ASSET
☺ Tax base of a LIABILTY
☺ Tax base of INCOME RECEIVED IN ADVANCE
27
HOW DO YOU
CALCULATE DEFERRED
TAX?
CA – TB = TD x ???%
= DT
Cost price – acc
depreciation – acc
impairment loss +/-
Fair value
adjustments +/-
Revaluation surplus
28
TAX BASE OF AN ASSET
The amount that will be
deductible for tax purposes
against any taxable economic
benefits
If those economic benefits will not be taxable, the tax base
of the asset = CA = No temp diff
29
TAX BASE OF AN ASSET
– Future economic benefits taxable
Ex 8.2
Machinery CP = R1m
Wear and tear allowance = 33.3%
W&T = 333 333 (R1m x 33.3%)

TB yr 1 = 1 000 000 – 333 333
= 666 667

benefits
30
Example
CP of asset = R2 500 000
SARS W&T = 20% per year

R2 500 000 x 20% = R500 000
TB Asset = Future tax ( )

Yr 1 = R2 000 000 (R2.5-R500k)
Yr 2 = R1 500 000 (R2m-R500k)
31
Example cont.
Year 1 Wear and tear = 500 000

Future TB @ end yr 1 = 2 000 000
Year 2 wear and tear = 500 000
Future TB @ end of yr 2 = R1 500 000
Year 3 wear and tear = 500 000
Future TB @ end of yr 3 = R1 000 000
Ect.
32
TAX BASE OF AN ASSET –
Future economic benefits taxable
Ex 8.2
Machinery CP = R1m
Wear and tear allowance = 33.3%
W&T yr 2 = 333 333

TB yr 2 = 1 000 000 – 333 333 (yr 1) – 333 333
(yr 2)
= 333 333

benefits
33
Future economic benefits taxable
Ex 8.2
Year 1 Year 2 Year 3

Cost 1 000 000 1 000 000 1 000 000
Acc W&T (333 333) (666 666) (1 000 000)
Tax base 666 667 333 334 Nil
34
Future economic benefits
Ex 8.3
NOT taxable
Trade receivables: CA = R50 000

TB = R50 000
as the related revenue already taxed when the
amount accrued to the entity. Cash receipt from debtor
no further tax implications as was already included in
taxable income at date of sale
35
Future economic benefits Ex 8.3
NOT taxable
CA – TB = TD x 28% = DT
50 000 – 50 000 = 0 x 28%
=0
36
TAX BASE OF A
LIABILITY
Carrying amount
less amount that will be
deductible for tax
purposes in future
periods
37
TAX BASE OF A LIABILITY -
Ex 8.4
Future settlement deductible
A provision for warranty cost CA = R1.5m

Warranty cost will be deductible when paid in future.
Tax base = R1.5m (CA) less R1.5m (future tax

deductions)
Tax base = Rnil
38
Future settlement
NOT deductible Ex 8.5
Loan:
CA = R2m
Repayment of loan no tax consequences  no
future deductions
TB = R2m
[R2m (CA) – R0 (future tax deduction)]
39
Ex 8.6
Future settlement partially deductible
40
TAX BASE ON REVENUE
RECEIVED IN ADVANCE
Carrying value less
amount of revenue that
will NOT be taxable in
future periods
41
TAX BASE ON REVENUE
RECEIVED IN ADVANCE –
NOT taxable in future Ex 8.7
Rental income of R10 000 was received in advance.

The total amount was taxed on receipt thereof.
Tax base = CA (R10 000) less amount not taxable in future
(R10 000)
Tax base = Rnil
It was already
taxed on receipt
42
TAX BASE ON REVENUE
RECEIVED IN ADVANCE –
Ex 8.8
taxable in future
A deposit of R20 000 was received for goods still

to be manufactured. If it is assumed that the
deposit will be taxed in future when the goods
are manufactured.
The tax base of the deposit =
CA (R20 000) less amount not taxable in future
(R0)
Tax base = R20 000
43
TEMPORARY DIFFERENCES:
TAXABLE OR DEDUCTABLE?
Taxable Deductible
TD TD
44
TAXABLE
Results in Results in
taxable larger tax Deferred tax
amounts in payments in LIABILTY
tax comp future
45
DEDUCTIBLE
Results in Results in
amounts smaller tax Deferred tax
deductible in payments in ASSET
tax comp future
46
TAXABLE OR DEDUCTABLE?
• = Deferred tax
Taxable TB LIABILITY
• = Deferred tax
Deductible ASSET
TB
47
TAXABLE OR DEDUCTABLE
Ex 8.9
Manufacturing plant
CP = R150 000
Deprecation = R30 000 (20% p.a.)
Wear & tear = R50 000 (33.33% p.a.)
CA TB TD
120 000  100 000  20 000 – Taxable
 (150 000 – 30 000)
 (150 000 – 50 000) FV eco
CA > TB = Taxable TD for Assets (DTL) benefits >
Future
deductions =
Tax payable in
future
48
Ex 8.10
Interest receivable
On 30 June 20x1 company A lends R300 000 to a 3rd party
@ market related rate of 15% p.a. YE = 31 Dec. Tax on cash
basis.
Interest receivable = Asset
TB of Asset = Amount deductible in future

= Nil! (SARS don’t allow allowance on interest received)
49
Ex 8.10
Interest receivable
CA TB TD
22 500 ♥ Nil 22 500 – Taxable
♥ (300 000 x 15% x 6/12)
Entity will be
tax in future
CA > TB = Taxable TD for Assets when money
received, no
tax
deductions
available
50
Ex 8.11
Research expenditure
Research expenditure = R600 000
Acc = written off in full in Yr1 (Acc = expense)
Tax = allowance of 25% p.a

(R600 000 x 25% = R150 000)
51
TAXABLE OR DEDUCTABLE Ex 8.11
Research expenditure
CA TB TD
0 450 000  450 000 – Deductible
 Written off in full in yr 1 (600k – 600k)

 (600k – 150k (600k x 25%))
CA < TB = Deductible TD for Assets
NB: Deferred tax even is zero balance in SFP!!!

FV eco benefits <
Future deductions =
Decrease in tax
payable in future
52
Provision for guarantees

Provision @ YE = R25 000
Tax = deduction for tax only in next year
TB for Liability = CA – Future ( )
CA TB TD
25 000 Nil 25 000 – Deductible
(25k – 25k)
Future tax
CA > TB = Deductible TD for Liabilities deduction =
decrease in
tax payable
53
Ex 8.13
Allowance for credit losses

Provision @ YE = R100 000
Tax = 25% as deduction
TB for Liability = CA - Future ()
CA TB TD
100 000 Future ( ) 25 000  75 000 – Deductible
 (100k – 75k) Will be allowed to

deduct R75k in
future when amount
CA > TB for Liability = Deductible TD becomes
irrecoverable. Future
tax deduction =
decrease in tax
payable
54
Revenue received in advance

Received for sales relating to next year = R100
Tax on earlier of receipts or unconditional right
thereto
CA TB TD
100 Nil 100 - Deductible
CA > TB = Deductible TD for Liabilities

TB = CA (R100) less
amount not tax in future
(R100) (was taxed when
received) = Nil! Included in P/L
next year, already
taxed, so adjust TI
= Deductible
55
STEPS IN THE RECOGNISTION
AND MEASUREMENT OF DT
 Exemptions from the recognition of deferred
tax
 Limitation for the recognition of deferred tax
assets for deductible temporary differences and
unused tax losses or credits
 Consideration of the appropriate tax rates (and
tax laws)
56
EXEMPTION FROM THE
RECOGNITION OF
DEFERRED TAX
• DT Liability not recognised if….

Par.15 of • Initial recognition of goodwill
• Initial recognition of asset or liability
which is NOT a business combination
IAS 12 AND affects neither Acc profit nor
taxable loss
• DT Asset not recognised if…

Par.24 of • Initial recognition of asset or liability
which is NOT a business combination
AND affects neither Acc profit nor
IAS 12 taxable loss
57
INITIAL RECOGNITION OF
GOODWILL
Deduction for goodwill in SA

Thus TB = zero (Goodwill = asset no future
deductions)
Thus = TD ( CA and TB)
However… IAS 12, par.15 prohibits recognition of

deferred tax on TD of goodwill
NB!!
Remember
this
exception!
58
INITIAL RECOGNITION OF
AN ASSET OR LIABILITY
Initial recognition – transaction not a business
combination, affects accounting nor taxable
profit (research cost)
Acc = expense research cost Ex 8.15
Tax = allowance of 25%
CA = Nil (because expense for Acc)
TB = 100%
Affect P/L (dr. Research cost (P/L), cr. Bank)
IAS12.24
Thus = DT raised on TD
59
combination, DOES NOT affects accounting
nor taxable profit (GG) Ex 8.16
Received non-taxable GG of R300 000

Accounting = R200 000 Deferred income and R100 000
recognised in P/L @ YE
CA = R200 000 (R300 000 – R100 000)
Deferred income = Income received in advance
TB for IRIA = CA – amount NOT tax in future
 TB = Nil (CA R200 000 – R200 000 amount not tax in
future because non-taxable GG)
Deductible TD = R200 000 (CA - TB)????
 CA > TB for Liability = Deductible TD
60
Initial recognition – transaction not a
business combination, DOES NOT affects
accounting nor taxable profit
Non-taxable GG
CA = R200 000 (Deferred income)
TB = R0
TD = R200 000
DT = ????
Does the exception not maybe

apply?
61
combination, DOES NOT affects accounting
nor taxable profit
Par 12.24: Initial recognition of asset or liability which
is NOT a business combination AND affects neither Acc
profit nor taxable loss
Initially: Dr. Bank (SFP) Cr. Deferred income (SFP)

 Does not affect Accounting profit
Also, does not affect taxable income (said it non-taxable
GG)
 Par 12.24 applicable Ex 8.16
Deferred tax asset = ZERO!!!
Affects neither accounting nor taxable income on initial
transaction date IAS 12.24
62
Initial recognition – transaction not
a business combination, DOES NOT affects
accounting nor taxable profit (land)
Revaluation =
Cost = R500 000 Deferred Tax
No capital allowance
CA = R500 000 (because not depr on land)
TB = Nil (No tax deductions for future)
Taxable TD = R500 000
Deferred Tax liability = ZERO!!!
Affects neither accounting nor deferred tax asset
on initial transaction date IAS 12.15
Dr. Land (SFP)

Cr. Bank (SFP)
Ex 8.17
63
Initial recognition – transaction not a
business combination, DOES NOT affects
accounting nor taxable profit (office building)
Cost = R100 000
Revaluation =
Useful live = 20 years Deferred Tax
No tax allowance
CA = R100 000 Ex 8.18
Deferred Tax liability = ZERO!!!
Affects neither accounting nor taxable
income on initial transaction date
Dr. PPE
Cr. Bank/Liability
64
Initial recognition – transaction a
business combination
(internally generated brand)
Ex 8.19
Cost = XXX
No tax allowance
CA = XXX
Taxable TD = XXX
Deferred Tax liability = YES!! TD arise from
in goodwill business
combination
If the brand was

purchased by the
parent??
65
STEPS IN THE RECOGNISTION AND
MEASUREMENT OF DTAX

tax laws)
66
LIMITATIONS ON THE RECOGNITION
OF
DEFERRED TAX ASSET
Only to the extent that it is probable that

taxable income will be available against which
the deductible temporary differences or
unused tax losses/credits can be utilised.
67
DEDUCTABLE TEMPORARY
DIFFERENCES – probability of
future taxable income Ex 8.20

Deductible TD = R600 000
R550 000 R50 000

TI is available as Probable future TI?
Sufficient Tax TD?
Yes= DTA
No = DTA
R174k (R600kx 29%) R159.5k
(R550kx 29%)
68
ASSESSMENT FOR UNUSED
TAX LOSSES AND UNUSED
TAX CREDITS
A deferred tax asset should be recognised for

the carry forward of unused tax losses and the
unused tax credits to the extent that it is
probable that future taxable profit will be
available against which the unused tax losses
and unused tax credits can be utilised
69
UNUSED TAX LOSSES
Unutilised tax loss

=
Deductible TD
=
Deferred tax asset
70
UNUSED TAX LOSSES
Taxable TD = 20 000
Unutilised tax loss = R30 000 Ex 8.21
Future taxable profits are uncertain
Tax rate = 29%
Taxable TD: 20 000 x 29% = R5 800 DTL

Unutilised tax loss = Deductible TD = Deferred tax asset. Ltd to
Taxable TD (because future taxable profits are uncertain): 20
000 x 29% = R5 800 DTA
DT balance = Nil (R5 800 L – R5 800 A)
71
UNUSED TAX LOSSES
Ex 8.21
Taxable TD = 35 000
Unutilised tax loss = R30 000
Future taxable profits are uncertain
Tax rate = 29%
Taxable TD: 35 000 x 29% = R10 150 DTL

Unutilised tax loss = Deductible TD = DTA.
Ltd to taxable TD (because future taxable profits are
uncertain but TTD > DTD therefore 100% of DTD can be
recognised): 30 000 x 29% = R8 700 DTA
DTL balance = R1 450 (R10 150L – R8 700A)
72
UNUSED TAX LOSSES
To summarize this example Ex 8.21
Scenario 1 Scenario 2
Taxable TD = R20 000 Taxable TD = R35 000
Deductible TD = R30 000 Deductible TD = R30 000
Future taxable profits are Future taxable profits are

uncertain uncertain
DTL = R20 000 x 29% = R5 DTL = R35 000 x 29% =

800 R10 150
DTA = R20 000 x 20% = R5 DTA = R30 000 x 20% = R8
800 (CAPPED TO DTL) 700 (DON’T NEED TO BE
CAPPED AS THEREI IS
ENOUGH DTL TO OFFSET
AGAINST) 73
ANNUAL REVIEW OF
RECOGNISED AND
UNRECOGNISED DEFERRED TAX ASSETS
The CA of recognised deferred tax asset should be

reviewed at each reporting period date to assess its
recoverability.
@ each reporting period reassess the unrecognised

deferred tax assets
74

 Limitation for the recognition of deferred tax assets for
deductible temporary differences and unused tax losses or
credits
 Consideration of the appropriate tax rates (and tax
laws)
75
THE APPROPRIATE TAX RATES (AND
TAX LAWS)
The deferred tax should reflect the tax

consequences that would result from the
manner in which the entity expects, at the
reporting date, to recover or settle the carrying
amount of its assets and liabilities
76
HOW DO YOU
CALCULATE
DEFERRED TAX?
CA – TB
= TD x ???%
= DT
77
EXPECTED MANNER OF
RECOVERY
Depreciable
assets
• Recovered through use:

• If no residual value and
@ 28% • Not classified as held for sale (IFRS 5)
• Recovered through sale:

@ • Classified as held for sale (IFRS 5)
18.648%
• Recovered through a combination of use and sale:

• Not classified as held for sale and
@ 28% • Residual value
and
18.648%
78
EXPECTED MANNER
OF RECOVERY OF
LAND
Always through sale
Thus @ (tax rate x CGT

inclusion rate)!!
79
HOW DO YOU GET
CGT INCLUSION RATE?
Tax % x CGT% = rate I use
Example 1:
Tax % = 28%
CGT inclusion rate = 66.6%
28% x 66.6% = 18.648%
Example 2:
Tax % = 30%
CGT inclusion rate = 50%
 CGT inclusion % = 30% x 50% = 15%
80
EXPECTED MANNER
OF RECOVERY
➢Non-depreciable asset (land), carried under
revaluation model of IAS 16
 Recovered through SALE @ 18.648%
 Land depreciated! Recovered through sale
➢ Investment property, measured @ FV IAS 40

 Recovered through SALE @ 18.648%
 IP @ FV depreciated! Recovered through sale
81
EXPECTED MANNER
OF RECOVERY
Combination of use and sale
Residual value =
Recovered through sale
CA in excess of Residual value =

Recovered through use
82
COMBINATION OF
USE AND SALE Deferred tax = (20kx28%)
+ (10k x 18.648%) + (15k
CP = R80 000 x 28%)
= R11 665
Residual value = R90 000
CA = R60 000
Revalued CA = R105 000
Thus Revaluation = R45 000 (R105 000 – R60 000)

105
15 = Use (@ 28%)
90
80 10 = CGT %
30 = Sale
60 20 = Recoupment = 28%
83
EXPECTED MANNER
OF RECOVERY
Combination of use and sale

Revalued CA
@ 28%
Residual value
CP @ 18.648%
CA @ 28%
84

tax laws)
 Recognition of deferred tax income or
expenses
85
RECOGNITION OF
DEFERRED TAX INCOME OR
EXPENSES
Recognise as Income/Expense in P/L except….

to extent that the tax arises from:
• Transaction outside P/L in OCI
or
• Business combination (IFRS 3)
86
RECOGNITION OF DEFERRED
TAX INCOME OR EXPENSES
Transaction outside P/L in OCI:

➢ Revaluation of PPE
➢ Adjustment to opening RE resulting from a retrospective
change in acc policy or prior period error (IAS 8)
➢ Exchange differences - foreign operations
➢ Equity component of compound financial instrument
➢ Fair value adjustment on financial assets (Available 4 sale
– IAS 39)
➢ Changes in fair value of cash flow hedge (IAS 39)
87
Ex 8.23
Transaction outside P/L in OCI:
➢ Revaluation of Land
CP = R350 000
Revalued = R380 000
Wear and tear allowance
88
RECOGNITION OF
DEFERRED
IAS 12.par 51B –
TAX INCOME OR Land only
through sale
EXPENSES
CA TB TD X ?% DT
Land 350 000 0 350 000 X Exempt
18.648 ✓
%
Revalua 30 000 0 30 000 X 5 594
tion 18.648 DTL
%
Balance 380 000 0 380 000 5 594
Revaluation = Recognise in DTL
OCI!!
Therefore DTE = OCI!
89
Transaction outside P/L in OCI: Ex 8.23
➢ Revaluation of Land
Dr. Land (SFP) R350 000
Cr. Bank (SFP) R350 000
Purchase of land
Dr. Land (SFP) R30 000

Cr. Revaluation surplus (OCI) R30 000
Revaluation of land
Dr. Revaluation surplus (OCI) R5 594

Cr. Deferred Tax (SFP) R5 494
Not P/L
90
BUSINESS COMBINATIONS
(IFRS 3)
TD in business combination 
Defer tax asset/liability 
Affects goodwill/Gain on
bargain purchase
91
BUSINESS
COMBINATIONS (IFRS 3)
Ex 8.24
X
80% @ CP of R490 000
Z
NAV = R500 000
(however plant undervalued by R100 000)
Dr. Plant R100 000
Cr. Reval sur+ (OCI) R100 000
Dr. Reval sur+ (OCI) R28 000
Cr. Defer Tax (SFP) R28 000
92
Ex 8.24
X
80% @ CP of R490 000
Z
NAV = R500 000
(however plant undervalued by R100 000)
NEW NAV: R572 000
(Given R500 000 + Reval of land R100 000 - DTax Liability
R28 000)
Goodwill: CP – your share of NAV
R490 000 – R457 600 (572 000 x 80%) = R32 400
93
X
80%
Z
If deferred tax not raised, goodwill would have
been R10 000 (R490k - R480k)
Diff = R22 400 (R32 400-R10 000)
= 80% of Defer tax of R28 000
Thus Defer tax on FV adjustment:
Dr. Goodwill R22 400
Dr. NCI R5 600
Cr. Dtax R28 000
94
CHANGE IN TAX RATE Ex 8.25
Example:
Tax rate decreased from 30% to 29% in 2009
Defer tax balance at the end of 2008 FY:

R60 000 cr As the rate
DTL decreased
Defer tax balance decreased with:
R60 000 x 1%/30% = R2 000
% change/old %
Question
12.2
95
OUT OF SCOPE
Change in the tax status of an enterprise or its

shareholders
Example 8.26
CHANGE IN CA OF
INVESTMENT
Will do in 2nd semester
Example 8.27
97
Impact of IAS 12 on
- IAS 23
BORROWING COST
-IAS 20
GOVERNMENT
GRANTS
98
BORROWING COST
CAPITALISED
R7m borrowing cost capitalised – deductible in year 1 (given)

Total cost of building (including BC) = R47m Don’t forget to
Depreciation = 20 year time allocate!
Available 4 use = 1 Oct (December Year end)
Building allowance of 5% p.a.
Depreciation for year = R47 m x 5% (or ÷ 20 years) x 3/12

= R587 500
BORROWING COST
CAPITALISED
CA = R46 412 500 (47m – 587 500)
TB = R38 000 000 (47m-7m-2m)

TD = R8 412 500 (46 412 500 – 38 000 000)
DT = R2 355 500 (8 412 500 x 28%)
DTL FV eco benefits >

Future deductions =
Tax payable in
CA > TB = Taxable TD for Assets future
IAS
12
BORROWING COST
CAPITALISED
1
0
2 MORE IAS 23
QUESTIONS
WITH DEFERRED TAX?
• IAS 23.6
• IAS 23.7
• Test 1 2016 Section D Question 1
IAS 12
Taxation
1
0
3
TAX BASE ON REVENUE
RECEIVED IN ADVANCE
Carrying value less
amount of revenue that
will NOT be taxable in
future periods
IAS
12
1
0
4 DEFERRED TAX FOR
GOVERNMENT
GRANTS
DT
Grant Grant
related to related to
income asset
Taxable Non-taxable Taxable Non-taxable
IAS 12
Taxation
TAXABLE GRANT RELATED
TO INCOME
1. Recognised all in P/L in year of receipt
 No deferred tax as for accounting and tax purposes recognised

as income
However…
1. Portion of grant deferred (DGI = Liability)
 Deferred grant income = deferred tax
105
IA
TAXABLE GRANT RELATED
TO INCOME Ex 13.9
Given: Received a taxable grant of R40 000 in year.

Grant to subsidise salaries from year 1 – 4, only R10
000 recognised in P/L in year 1.
Deferred grant income in SFP:

CA = R30 000 (R40 000 – R10 000)
TB = Rnil [CA (R30k) – amount NOT tax in future
(R30k)]
TD = R30 000
DT = R9 000 (R30 000 x 30%)
DT-Asset!! (CA > TB for Liability)
106
IA
1
0 TAXABLE GRANT RELATED
7
TO INCOME Ex 13.9
Given: Received a taxable grant of R40 000 in year . Grant

to subsidise salaries from year 1 – 4, only R10 000
recognised in P/L in year 1.
Tax comp:
+ Grant received R40 000
- Grant already recognised in P/L (R10 000)
R30 000
+ answer = Deductible TD = DTA (R30 000 x 30%)
IAS 12
Taxation
1
0
8 DEFERRED TAX FOR
GOVERNMENT
GRANTS
DT
Grant Grant
income asset
Non-
Taxable Taxable Non-taxable
taxable
IAS 12
Taxation
NON-TAXABLE GRANT
RELATED TO INCOME
Recognised all in P/L in year of receipt or
Portion of grant deferred
No deferred tax!!
Amount recognised in P/L = Non-taxable
item (Perm diff thus in tax rate recon)
Deferred grant income in SFP =
Exemption per IAS12.24
109
IA
1
1 NON-TAXABLE GRANT
0 Ex 13.10
RELATED TO INCOME
Given: Received a non-taxable grant of R40 000 in year.
Grant to subsidise salaries from year 1 – 4, only R10 000
CA = R30 000 (R40 000 – R10 000)
TB = Rnil [CA (R30k) – amount NOT tax in future (R30k)]
TD = Exempt!!
DT = Nil!!
When grant was received: Dr. Bank Cr. Deferred grant
income  Thus did not affect Acc profit (P/L) and non-
taxable = Will not affect Tax profit
Thus par IAS12.24 applicable!
IAS 12
Taxation
1
1 NON-TAXABLE GRANT
1
RELATED TO INCOME
Given: Received a non-taxable grant of R40 000 in year .

Grant to subsidise salaries from year 1 – 4, only R10 000
Tax comp:
PBT Rxxx
Non-taxable item:
Less: Grant received (R10 000)
Ex 13.10
IAS 12
Taxation
1
1
2 DEFERRED TAX FOR
GOVERNMENT
GRANTS
DT
Grant Grant
income asset
Taxable Non-taxable Taxable Non-taxable
IAS 12
Taxation
1
3
TO ASSET
GG related
to asset
Deferred
( ) Asset
grant income
Deferred Tax Deferred Tax
IAS 12
Taxation
1
4
TO ASSET
Given: Received a taxable grant of R40 000 in year. Grant

subsidise acquisition of asset with cost of R140 000. Asset
TUL = 10 years, no residual value. Assume 40% tax
allowance is granted on asset in yr 1. Policy = Account for
grant as deferred income.
Deprecation = R140 000/10 = R14 000

Grant income (P/L) = R40 000/10 = R4 000
Deferred grant income (SFP) = R36 000
(R40k – R4k)
Ex 13.11
IAS 12
Taxation
1
5
TO ASSET Ex 13.11
Deferred
tax for:
Deferred
Asset
income
IAS 12
Taxation
1
6
TO ASSET
 Asset in SFP:
CA = R126 000 (R140 000 – R14 000)
TB = R84 000
TB for asset = Future deductions
40% allowance in yr 1 (R56 000), thus 60% in future
R140 000 x 60% = R84 000
OR
R140 000 – R56 000 = R84 000
TD = R42 000
DT = R12 600 (R42 000 x 30%)
DT LIABILTY!! (CA > TB for ASSET)
Ex 13.11
IAS 12
Taxation
1
7
TO ASSET
 Deferred grant income in SFP:
CA = R36 000 (R40 000 – R4 000)
TB = Rnil (CA – amount NOT tax in future)
TD = R36 000
DT = R10 800 (R36 000 x 30%)
DT – ASSET!!
CA > TB for LIABILTY
DT balance:
Asset = R12 600 L
DGI = R10 800 A
= R1 800 L Ex 13.11
IAS 12
Taxation
1
8
TO ASSET
Tax comp:
+ Depreciation R14 000
- Tax allowance (R56 000)
- Grant already recognised in P/L (R4 000)
(R6 000)
Negative answer = Taxable TD = DTL (R6 000 x 30%)
Ex 13.11
IAS 12
Taxation
1
9
TO ASSET
Given: Received a taxable grant of R40 000 in year. Grant

subsidise acquisition of asset with cost of R140 000. Asset
TUL = 10 years, no residual value. Assume 40% tax
allowance is granted on asset in yr 1.
Policy = Account for grant as deduction against asset
Deprecation = R140 000 – R40 000/10 = R10 000
Ex 13.12
IAS 12
Taxation
1
0
TO ASSET Account for grant as deduction against
asset
Asset in SFP:
CA = R90 000 (R140 000 – R40 000 - R10 000)
TB = R84 000
R140 000 x 60% = R84 000
OR
R140 000 – R56 000 = R84 000
TD = R6 000 (R90 000 – R84 000)
DT = R1 800 (R6 000 x 30%)
Ex 13.12
IAS 12
Taxation
1
1
TO ASSET
Tax comp:
(R6 000)
Ex 13.12
IAS 12
Taxation
1
2
2 DEFERRED TAX FOR
GOVERNMENT
GRANTS
DT
Grant Grant
income asset
Non-
Taxable Non-taxable Taxable
taxable
IAS 12
Taxation
NON-TAXABLE GRANT
RELATED TO ASSET
Grant received
 No deferred tax!!
However…
If asset Depr and W+T not same

Deferred tax
123
IA
1
2 NON-TAXABLE GRANT
4
RELATED TO ASSET

Grant subsidise acquisition of asset with cost of R140 000.
Asset TUL = 10 years, no residual value. Assume 40% tax
Policy = Account for grant as deferred income
Deprecation = R140 000/10 = R14 000
Ex 13.13
IAS 12
Taxation
1
2 NON-TAXABLE GRANT
5
RELATED TO ASSET
Asset in SFP:
CA = R126 000 (R140 000 – R14 000)
TB = R84 000
R140 000 x 60% = R84 000
OR
R140 000 – R56 000 = R84 000
TD = R42 000
DT = R12 600 (R42 000 x 30%)
Ex 13.13
IAS 12
Taxation
1
2 NON-TAXABLE GRANT
6
RELATED TO ASSET
CA = R36 000 (R40 000 – R4 000)
TB = Rnil (CA – amount NOT tax in future)
TD = Exempt!!
DT = NIL
When grant was received: Dr. Bank Cr. Deferred grant
income  Thus did not affect Acc profit (P/L) and non-
taxable = Will not affect Tax profit
Thus par IAS12.24 applicable!
DT balance:
Asset = R12 600 L
DGI = R0
= R12 600 L Ex 13.13
IAS 12 Taxation
1
2 NON-TAXABLE GRANT
7
RELATED TO ASSET
Tax comp:
Non-taxable item
Grant income received (R4 000)
Temporary differences: (R42 000)


Ex 13.13
IAS 12
Taxation
1
2 NON-TAXABLE GRANT
8
RELATED TO ASSET

Grant subsidise acquisition of asset with cost of R140 000.
Asset TUL = 10 years, no residual value. Assume 40% tax
Policy = Account for grant as deduction against asset
Deprecation = R140 000 – R40 000/10 = R10 000
Ex 13.14
IAS 12
Taxation
1
2 NON-TAXABLE GRANT
9
RELATED TO ASSET Ex 13.14
IAS 12
Taxation
1
3 NON-TAXABLE GRANT
0
RELATED TO ASSET
Tax comp:
(R42 000)
Ex 13.14
IAS 12
Taxation
1
3
1 MORE QUESTIONS OF
GOVERNEMENT GRANTS WITH
DEFERRED TAX?
• IAS 20.2
• IAS 20.4
• IAS 20.7
• IAS 20.8
• IAS 20.9
IAS 12
Taxation
DIVIDEND TAX
(withholding tax on dividends)
Replaced STC – effective April 2012
Dividends are taxed in the hands of the beneficial owner
of the share (shareholder)
Entity declaring the dividends acts as agent for SARS 
pays over the dividend tax to SARS on behalf of the
shareholder
Even though the entity pays the tax over, the dividend tax is
levied on the shareholder and not the entity. Tax
expense is to shareholder and not the entity.
Dividends declared and paid to a shareholder that is a

company, is exempt from dividend tax and therefore no
tax will arise on dividends declared in a group.
132
DIVIDEND TAX
Ex 8.28
(withholding tax on
dividends)
On 31 Dec 20x1 A Ltd paid a dividend of R100 000 to its
shareholder, Mr. A.
A Ltd is legally required to withhold dividend tax of 10%. The
tax was paid on 4 Jan 20x2.
31 Dec 20x1:
Dr. Dividend paid (SCE) R100 000
Cr. Bank (SFP) R90 000
Cr. SARS (SFP) R10 000
133
PRESENTATION OF DEFERRED TAX
DEFERRED TAX
= NON-CURRENT ASSET OR LIABILITY
Offsetting of current tax asset/liability

Only if:
➢ Has a legally enforceable right to offset the
recognised amount AND
➢ Intends to either settle on a net basis, or to
realise the asset and settle the liability
simultaneously
134
DISCLOSURE (NOTES)
 Accounting policy
 see in text book (won’t be tested in COFA302)
 Notes:
☺ Deferred tax balance reconciliation
☺ Income tax expense note
☺ Tax reconciliation (R or %)
135
DISCLOSURE
Income tax note
136
DISCLOSURE
Income tax note
137
DISCLOSURE
TAX RECONCILATION AND TAX RATE

RECONCILIATION
Reconcile the (accounting profit X 28%) to income tax
expense per the face of Statement of P/L
Reconciling items:
✓ Non-deductible or non-taxable items (permanent
differences)
✓ Over or under provision for current tax of prior years
✓ Taxed @ different rates
✓ Rate changes
✓ Deferred tax asset raised for all deductible temporary
differences and unused tax losses
138
DISCLOSURE
Deferred tax note
139
PRESENTATION &
DISCLOSURE
Page 170
Example in GAAP
GAAP Handbook 2018
PRESENTATION &
DISCLOSURE Page 170
in GAAP
2018
PRESENTATION &
DISCLOSURE Page 170
in GAAP
2018
PRESENTATION &
DISCLOSURE Page 170
in GAAP
2018
PRESENTATION & Page 170
in GAAP
DISCLOSURE 2018
Tax expense 20x4 – 2m due from

SARS for 20x3 – R11m prov tax in
20/x
PRESENTATION & Page 170
in GAAP
DISCLOSURE 2018
R59 088 x 28%
Taking 20x4
DT comp x
28%
TAXABLE VS
DEDUCTABLE TD NB!!!
How do I know if it is a
deductible of taxable temp
diff in the tax comp?
Taxable TD = () in tax comp
Deductible TD = + in tax
comp
146
PRESENTATION &
DISCLOSURE
Tax reconciliation Ex 8.30
➢ Profit before tax = R100 000

➢ R15 000 foreign profits not taxed in SA,
taxable in USA @ 20%
➢ Non-deductible items = R5 000
➢ Non-taxable items = R2 000
➢ Movement in Taxable TD = R20 000
➢ Tax rate = 29%
147
PRESENTATION &
Ex 8.30
DISCLOSURE
Tax reconciliation
Tax comp:
Profit before tax R100 000
Permanent differences
Less: Foreign profits – not taxed in SA (R15 000)
Add: Non-deductible items: R5 000
Less: Non-taxable items: (R2 000)
Less: Taxable Temporary differences (R20 000)
Taxable income: R68 000
Tax expense (@ 29%) 19 720
148
PRESENTATION &
DISCLOSURE
Tax reconciliation Ex 8.30
Income tax expense in P/L:

Normal tax - current R19 720
Deferred tax (R20 000 x 29%) R5 800
Foreign tax (R15 000 x 20%) R3 000
Total income tax expense: R28 520
Tax reconciliation:
Profit before tax R100 000
Tax at applicable rate (R100k x 29%) R29 000
Non-deductible items (R5 000 x 29%) R1 450
Non-taxable items (R2 000 x 29%) (R580)
Different tax rates [(R15 000 x (29%-20%)] (R1 350)
Income tax expense R28 520
149
Summary
150
Summary
151
Summary
152
How will IAS 12 be
tested?
• Calculations AND
• Presentation or
• Disclosure or
• Journals
HOMEWORK!!
✓ IAS 12.12
✓ IAS 12.13
✓ IAS 12.14
✓ IAS 12.15
✓ IAS 12.16
154
CLASS WORK!!!
•Test 1 2017_Section D Question 1 (10 marks)

•Test 1 2016_ Section D Question 1 (30 marks)

IAS 12 Taxation

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IAS 12 Taxation

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IAS 12 Taxation

Presented by: Meloney Fourie

IAS 12 deals with the accounting for all income

= amount of income taxes payable or

• Liability - to extent unpaid

01/01 Amount due at end of prior year = R9 840

30/06 First provisional tax payment = R7 500

01/01 Amount due at end of prior year = R9 840

31/12 Second provisional payment = R9 350

31/12 Provision for CY tax = R38 635

X 28% (only if taxable income)

Revenue received in advance (L):

Prepaid expense (asset):

X 28% (only if taxable income)

Expenses are recognised in the P/L before they are

Revenue is subject to taxes before it is taxable in P/L

An accounting concept that takes account of timing

Defer tax liability = recovery of CA of the

Defer tax asset = recovery of CA of the asset/settlement

 Calculation of temporary differences

Amount attributable to that asset/liability for tax purposes

☺ Tax base of an ASSET

☺ Tax base of a LIABILTY

☺ Tax base of INCOME RECEIVED IN ADVANCE

W&T = 333 333 (R1m x 33.3%)

The amount that will be

CP of asset = R2 500 000

SARS W&T = 20% per year

TB Asset = Future tax ( )

Year 1 Wear and tear = 500 000

W&T yr 2 = 333 333

The amount that will be

Year 1 Year 2 Year 3

Tax base 666 667 333 334 Nil

Trade receivables: CA = R50 000

A provision for warranty cost CA = R1.5m

Tax base = R1.5m (CA) less R1.5m (future tax

Rental income of R10 000 was received in advance.

A deposit of R20 000 was received for goods still

Interest receivable = Asset

TB of Asset = Amount deductible in future

Acc = written off in full in Yr1 (Acc = expense)

Tax = allowance of 25% p.a

 Written off in full in yr 1 (600k – 600k)

CA < TB = Deductible TD for Assets

NB: Deferred tax even is zero balance in SFP!!!

Provision for guarantees

Allowance for credit losses

 (100k – 75k) Will be allowed to

Revenue received in advance

CA > TB = Deductible TD for Liabilities

• DT Liability not recognised if….

• DT Asset not recognised if…

Deduction for goodwill in SA

However… IAS 12, par.15 prohibits recognition of

Received non-taxable GG of R300 000

Does the exception not maybe

Initially: Dr. Bank (SFP) Cr. Deferred income (SFP)

Dr. Land (SFP)

If the brand was

 Calculation of temporary differences

Only to the extent that it is probable that

Taxable TD = R550 000

R550 000 R50 000