Summary IAS 12: Income Tax notes

FinAcc 379
Lexi Shtein
Income Taxes: IAS 12

, IAS 12: INCOME TAXES

Tax Steps


① Pay provisional income tax 6 months & end of year

② Tax estimate DR – Tax expense (P/L)
CR – Tax payable (SFP)

③ Return under/overprovision
ALWAYS ASSUME SARS IS CORRECT

④ Pay / receive outstanding amount underprovision: overprovision:

DR – Tax payable (SFP) DR – Bank (SFP)
CR – Bank (SFP) CR – Tax payable (SFP)


TAX ESTIMATE LESS THAN SARS JOURNAL OCCURS AFTER Y/E




JOURNALS
Pay provisional tax: DR – Tax payable (SFP)
CR – Bank (SFP)

Tax estimate: DR – Tax expense (P/L)
CR – Tax payable (SFP)

Account for differences: DR – Tax payable (SFP)
CR – Tax expense (P/L)

underprovision: DR – Tax payable (SFP)
CR – Bank (SFP)

overprovision: DR – Bank (SFP)
CR – Tax payable (SFP)

DR – Interest expense / penalties (P/L)
CR – SARS (SFP)

DR – SARS (SFP)
CR – Interest Received (P/L)




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,EXAMPLE:



30 Jun ‘12 31 Dec ‘12 after audit any time
31 Dec ‘11

1st provisional 2nd provisional tax estimate receive tax
payment payment assessment



Eg: R50 000 R70 000 R140 000 R150 000


TAX PAYABLE (SFP) TAX EXPENSE (P/L)
Bank 50 000 Tax expense 140 000 Tax payable 140 000 Profit & Loss 140 000




EXAMPLE:

• Opening balance current tax payable on 1 March 2019 = R20 000 owed to SARS
• Pay the first provisional tax payment of R35 000 on 31 August 2019
• 2019 assessment was received and shows a R5 000 over-provision
• Pay the second provisional tax payment of R8 000 on 28 February 2020
• The profit before tax for 2020 was R160 000.
• Income tax is at a rate of 28%


GENERAL LEDGER:

CURRENT TAX PAYABLE
Bank 35 000 Balance b/d 20 000
Income Tax 5 000 Income tax 44 800
Bank 8 000
Balance c/d 16 800
64 800 64 800
Balance b/d 16 00




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, Current tax

• At year end company calculate current tax payable on taxable income
• Taxable income = profit for period,determined in accordance with rules of taxation authorities, upon which taxes
are payable
• Accounting profit is adjusted to calculate taxable income.
• General differences:
• Non-deductable expenses and non-taxable income
• Depreciation (acc) vs wear and tear (SARS)
• Profit/loss with sale of asset (acc) vs recoupment (SARS)
• CURRENT ASSET / CURRENT LIABILITY SARS




Provision and payment of current tax


Provisional tax payments made during the year

1st provisional payment 6 months before year end

2nd provisional payment at year end

3rd provisional payment if 1st and 2nd provisional payments not sufficient


JOURNALS:


DR - Current tax payable / SARS (SFP)
CR - Bank (SFP)

At year-end company provide for current tax liability ito Income Tax Legislation

DR - Income tax expense – current (P/L)
CR - Current tax payable / SARS (SFP)

Receive assessment from SARS with actual tax liability ð ASSUME SARS IS ALWAYS CORRECT
Difference between tax payable as per assessment and provision of company = under- or overprovision.

UNDER-PROVISION (Company has provided too little)
DR - Income tax expense – current (P/L)
CR - Current tax payable / SARS (SFP)


OVER PROVISION: (Company has provided too much)
DR - Current tax payable / SARS (SFP)
CR - Income tax expense – current (P/L)
Pay assessment if provisional payments insufficient.
Note: Over / under provision always results in reconciling item in tax recon (IAS 12.81c) because tax is related
to profit before tax of previous year




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