MFRS 112

INCOME TAXES
Recognition of current tax
liabilities and current tax assets
A tax liability is to be recognised when an entity has any
unpaid current tax, whether arising from current or prior
periods. Tax payable
If the entity has overpaid its tax liability, then it should
recognised a tax asset for the amount recoverable. Tax
recoverable
***In the SOPL, the tax expense comprises an aggregate
amount of the current tax expense and deferred tax expense
based on the profit or loss for the period.
Example 1
An asset which cost RM150 has a carrying amount of RM100.
Cumulative allowance for tax purpose is RM90. Tax rate is
25%.
Workings:
Item Carrying Tax base Taxable Deferred
amount temporary tax
difference liability
: CA of
asset > TB A x 25%

Asset 150 – 50 = 150 – 90 = 40 40 x 25%

100 60 = 10
Example 2
An entity recognises a liability of RM100 for accrued product
warranty costs. For tax purposes, the product warranty costs
will not be deductible until the entity pays the claim. Tax rate is
25%.
Workings:
Item Carrying Tax base Deductible Deferred
amount temporary tax asset
difference
A A x 25%
Liability 100 - 100 25
 Example 3
An entity has an interest receivable of RM500 in its SOFP.

It has been recorded as an income in SOPL in the current period in determining the
accounting profit.

In the following year, when the interest is received (cash), it will be chargeable to
tax.

Applying the following rule:

the amount that will be deductible for tax purpose against any taxable economic
benefits that will flow to an entity when it recovers the carrying amount of the asset.
EXAMPLE 4
An entity has an accrued wages of RM1,000 in its SOFP.
It has been recorded as an expense in SOPL in the current period in
determining the accounting profit.
In the following year when the wages is paid(cash), it will be
chargeable to tax.

Applying the following rule:

(its carrying amount less any amount that will be deductible for tax
purposes in respect of that liability in future periods)
 Solution for example 3 & 4
Tax rate is 25% .Determine DTA or DTL.
Item CA TB TTD DTD
Interest 500 500-500 = 500 -
Receivable (asset) nil

Accrued 1,000 1,000- - 1,000

Wages (liability) 1,000 =
nil
Total 500 1,000
Net temporary differences 500 (1,000-500)
(compare TTD and DTD)

( x ) Tax rate 25%

Deferred tax asset (bal c/d ) 125
 Assuming bal b/d of Deferred Tax Asset is RM200, compute
the deferred tax expense.
Deferred tax asset a/c (verticle)
RM
Bal b/d (prior period) 200
Restatement of bal b/d ( if nil
there is changes of taxes rate
between current and prior
period)
Less: Deferred tax expense (75)
Bal c/d (current period) 125
 Deferred tax asset account
Balance b/d 200 SOPL – deferred 75
(as per SOFP) or tax expense
Prior year tax rate x
prior year DTD
SOPL : XXX
Restatement ( old
rate – new rate x
prior year DTD)
SOPL – deferred XXX Balance c/d 125
tax income ( Current year tax
rate x current year
DTD)
200 200
Assuming profit before tax is RM700. Determine the current
tax expense.
Extract SOPL
RM
Profit before tax 700
( x )Tax rate 25%
Tax expense 175
( - ) deferred tax expense or (75)
( +) deferred tax income -
Current tax expense 100
Prepare an extract SOPL showing the current tax expense and
deferred tax expense.
Extract SOPL
RM RM
Profit before tax 700
Less: Taxation expense
Current tax expense 100
Deferred tax expense 75 175
Profit after tax 525
CHANGES IN THE TAX RATE

Increase or decrease in tax rate between current and prior

period. E.g 2019 – 24% & 2018 – 25%
A restatement in the deferred tax account is to be recognized
when there is changes in the tax rate.
INCREASE IN TAX RATE
Deferred tax liability account
SOPL - deferred XXX Balance b/d XXX
tax income (as per SOFP)
prior tax rate x
prior TTD
SOPL : XXX
Restatement ( old
rate vs. new rate x
prior year TTD)
Balance c/d XXX SOPL - deferred XXX
( current year tax tax expense
rate x current
year TTD)
XXX XXX
INCREASE IN TAX RATE
Deferred tax asset account
Balance b/d XXX SOPL – deferred XXX
(as per SOFP) tax expense
prior year tax rate
x prior year DTD
SOPL : XXX
Restatement ( old
rate vs. new rate x
prior DTD)
SOPL – deferred XXX Balance c/d XXX
tax income ( Current year tax
rate x current year
DTD)
XXX XXX
DECREASE IN TAX RATE
Deferred tax liability account
SOPL : XXX Balance b/d XXX
Restatement ( old (as per SOFP or
rate vs. new rate x prior year tax rate
prior year TTD) x prior year TTD)
SOPL – deferred XXX SOPL – deferred XXX
tax income tax expense
Balance c/d XXX
( current year tax
rate x current
year TTD)
XXX XXX
DECREASE IN TAX RATE
Deferred tax asset account
Balance b/d XXX SOPL : XXX
(as per SOFP or Restatement ( old
prior year tax rate rate vs. new rate x
x prior year DTD) prior DTD)
SOPL –deferred XXX SOPL –deferred XXX
tax income tax expense
Balance c/d XXX
( current year tax
rate x DTD)
XXX XXX
Offsetting
Offsetting is allowed for deferred tax assets and deferred tax
liabilities, current tax assets and current tax liability only when
the entity:
1) has a legally enforceable right to set off the recognised
amounts
2) intends either to settle on a net basis or to realise the asset
and settle the liability simultaneously.
Presentation and disclosure
Extract SOFP
RM
Non-current asset
Deferred tax asset XXX
Current asset
Tax recoverable XXX
Non-current liability
Deferred tax liability XXX
Current liability
Tax payable XXX
Extract SOPL
RM RM
Profit before tax XXX
Less: Taxation expense
Current tax expense XXX
Deferred tax expense XXX XXX
Profit after tax XXX