IAS12 INCOME TAXES

LECTURE 4 DISCLOSURE AND PRESENTATION

EFIN2708 / EACC3708

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 PURPOSE AND OBJECTIVE

The purpose and objective of this session are to help you with:

Disclosure of deferred tax and current tax.

How to prepare the financial statements in accordance with IFRS, referring to taxes.
CONTENT MATERIAL

Introduction to IFRS: Chapter 7 Sections 10.

A guide through IFRS: IAS 12 Income taxes (Included in your reader). Paragraphs 71 – 77 and 79 - 88.
Please ignore all references to the following, as these aspects fall outside the scope of the module:
• Unused tax losses, unused tax credits, assessed losses, unrecognized deferred tax assets.
• Deferred tax on revalued land
• Changes in tax rates

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Disclosure
Current and deferred tax shall be disclosed as follows:

 In the Statement of profit or loss and other comprehensive income (‘SPL’):

• Separate line item on the face of the statement (Income Tax expense)

 In the Statement of financial position (‘SFP’):

• Deferred Tax: Separate line item on the face of the statement – Non-current (asset or liability)
• Current Tax: Separate line item on the face of the statement – Current (asset or liability)

 In the Notes:
Income tax expense
• Major components (Reconciliation)
• Tax rate reconciliation (Include only permanent differences)
Deferred Tax Balance (Analysis of temporary differences)

See Illustrative Financial Statements attached on Blackboard under Additional resources

https://kpmg.com/xx/en/home/services/audit/international-financial-reporting-standards/ifrs-illustrative-financial-statements.h
tml

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DISCLOSURE continue
In the SPL Notes:
Income tax expense (Major components):
Current Tax expense: xx
SA current tax expense xx
Foreign current tax (N/A) xx
Over/under provision previous year (xx ) / xx

Deferred tax expense: xx

Movement in TD : Normal xx / (xx)
Shows movement
in temporary
: Capital xx / (xx) differences

Other (N/A, eg. Assessed loss, etc.) xx

TOTAL TAX EXPENSE (SPL) XXX

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 DISCLOSURE continue
In the SPL Notes:
TAX RATE RECONCILIATION:
%* R
Profit before tax 100 000
Tax @ 27% 27 % 27 000
Non deductible expenses (@27%) x% x Permanent
differences
Non taxable income (@ 27%) (x)% (x)
Tax change in rate
Under / over provision x%/(x)% x/(x)
Other N/A (Unrecognised tax loss, etc.) x%/(x)% x/(x)
Effective Tax x% X XXX
Test: Income tax / PBT = Effective tax rate %
*Calculation of % adjustment: (R/PBT x 27%)

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 DISCLOSURE continue

20.23
Rand
Deferred tax balance:
(Show each type of temporary difference)
Analysis of temporary differences
Capital allowances for tax purposes x/(x)
Prepaid expenses x/(x)
Allowance for credit losses x/(x)
Research cost x/(x)
Deferred tax asset / liability x/(x)

Work through example 7.27 in the textbook. 6

 Disclosure
May we offset assets and liabilities in terms of the Framework?

 Only when a statement specifically allows it. IAS12, par 71 stipulates that an entity shall offset current
tax assets and current tax liabilities if, and only if, the entity:
(a) has a legally enforceable right to set off the recognised amounts; and
(b) intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

 For DTA and DTL to be offset, it is only allowed if (IAS12, par 74)
(a) has a legally enforceable right to set off the recognised amounts; and
(b) Relate to income taxes levied by the same taxation authority, etc.

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 INCOME TAX ON SPECIFIC TOPICS NOT YET
COVERED
IMPORTANT

Please note that specific reference and attention should be given to the income tax principles, calculations, disclosure and presentation requirement as per IAS12, when the remaining topics for the year
are done. These topics include, but are not limited to the following:

IAS 2: Inventory;

IAS 8: Accounting policies, changes in accounting estimates, and errors;

IAS 10: Events after the reporting period

IAS 16: Tax and Property, plant and equipment (‘PPE’);

IAS 19: Employee benefits;

IAS 21: The effects of changes in foreign exchange rates (Forex).

IAS 37: Provisions, contingent liabilities and contingent assets;

IAS 36: Impairment of assets;

IAS 38: Intangible assets;

IAS 40: Investment property;

IFRS 16: Leases

Etc.

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 HOMEWORK AND ASSESSMENT

HOMEWORK QUESTIONS
Homework questions and memos are uploaded on Blackboard. Please do the questions, then mark it and correct your work. Make notes on
errors made and adjust your thinking pattern where necessary.

Universal Fitness part d

Basics Ltd part d

(Memos to these exercises will be uploaded as (b) documents, i.e. the memo for the activity questions would be document 3.1(b).

Please do the questions on your own, then mark them and correct your own work. Make notes on errors made and correct your thinking
pattern where necessary. There are also other homework questions and memos uploaded on Blackboard, remember that detailed tax
treatment of specific future topics will be done throughout the remainder of the year.

ASSESSMENT
NB!!!! 18 April 2024 Class test on IAS 16 and IAS 12
THANK YOU 🤗