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    Deferred income tax accounting allocates income tax expense to the correct period by recognizing temporary differences between an asset or liability's carrying amount and its tax base. A deferred tax asset should be recognized when it is probable it will be recovered against future taxable profits. For losses, convincing evidence of future taxable profits or tax planning is needed. The example calculates deferred tax of Rs. 12,000 for 2022 on temporary differences of Rs. 20,000 for investments and Rs. 50,000 for provisions that will partially reverse in future years. Deferred tax is also recognized on increases in value of investments in associates where the tax base remains cost.

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    IAS 12

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    IAS 12

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    Deferred income tax accounting allocates income tax expense to the correct period by recognizing temporary differences between an asset or liability's carrying amount and its tax base. A deferred tax asset should be recognized when it is probable it will be recovered against future taxable profits. For losses, convincing evidence of future taxable profits or tax planning is needed. The example calculates deferred tax of Rs. 12,000 for 2022 on temporary differences of Rs. 20,000 for investments and Rs. 50,000 for provisions that will partially reverse in future years. Deferred tax is also recognized on increases in value of investments in associates where the tax base remains cost.

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    23 views80 pages

    Ias 12

    Uploaded by

    monib rahman
    Deferred income tax accounting allocates income tax expense to the correct period by recognizing temporary differences between an asset or liability's carrying amount and its tax base. A deferred tax asset should be recognized when it is probable it will be recovered against future taxable profits. For losses, convincing evidence of future taxable profits or tax planning is needed. The example calculates deferred tax of Rs. 12,000 for 2022 on temporary differences of Rs. 20,000 for investments and Rs. 50,000 for provisions that will partially reverse in future years. Deferred tax is also recognized on increases in value of investments in associates where the tax base remains cost.

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    of 80

    IAS 12

    Income Taxes
    ACCA SBR
    BY CA ROHIT SINGHAL
    Deferred income tax accounting is inter-period income tax allocation: allocating income tax
    expense to the correct period.
    Liabilities
    Carrying amount
    Less- tax base ( CA- future deduction)
    Temporary difference
    Here the temporary difference means future deduction
    Prudence limits in case of DTA
    DTA should be created when it is probable that it will be recovered in future against taxable
    profits.
    It means DTA should not be created if entity does not expects it recovery.
    It is considered as probable recovery if –
    A. Sufficient TTD under the same governing law are expected to reverse in the same period in
    which DTD are expected to reverse. Or
    B. expected taxable profits sufficient to cover the reversal of the DTD are expected to arise or tax
    planning opportunities exists period during which DTD is expected to reverse.
    Prudence limits in case of Losses
    All points remains same expect point B above – here convincing evidence of taxable profits or tax
    planning needs to be checked for making DTA on losses.
    Example -year 2022
    Carrying Tax base Expected
    amount reversal
    Investments 2,00,000 1,80,000 2023
    Provision for 3,00,000 2,50,000 50% in 2023
    warranty and 50% in
    2024

    Calculate deferred tax to be recognized in 2022 . Assume no future


    income of company and tax rate is 30%.
    Investment in associates (unremitted
    earnings)
    While preparing CFS , investments in associates are
    recorded at equity method. In case the tax base remains
    cost of investments while carrying amount changes due to
    increase in the value of investments.
    Deferred tax is calculated in such case.

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