Summary IAS 12 Deferred Tax

IAS 12: INCOME TAXES
SCI:
Profit before tax XXX
Income tax expense (X) Current Tax (Normal SA tax)
- SARS
- Based on transactions/Taxable income (PBT & adjust)
- Current period
Deferred tax (movement of DT as per SFP)
- Accounting principle
- Based on balances
- Future period
Profit for the year XX
Other comprehensive income X
Total Comprehensive income for the year XXX

SFP:
Non-current assets/liabilities (>12 months)
Deferred tax XX Balance @ y/e
Tax consequences of future periods (SFP)
Income tax recoverable or payable in the near future
Current assets/liabilities (<12 months)
SARS XX Current tax receivable/payable
Tax consequences of current and prior periods (SCI)

CURRENT TAX
− On year end company calculate current tax payable on taxable income
o Taxable income = profit for period, determined in accordance with rules of taxation authorities, upon
which taxes are payable
o Accounting profit is adjusted to calculate taxable income. (Add back acc items and adjust with tax
items)
− General differences:
o Non-deductible interest and non-taxable income
o Depreciation (acc) vs wear and tear (SARS)
o Profit/loss with sale of asset (acc) vs recoupment (SARS)
o Movement on provision for bad debts (acc) vs % deduction based on bad debts on y/e (SARS)

Provision for tax/SARS (SFP) → Current Asset/Liability
Bank (1st Provision) [1] Income tax expense [3]
Profit budgeted for year x tax rate /2 (Taxable income x tax rate @ y/e)
Bank (2nd Provision) [2] Income tax expense [4]
Income tax expense [4]
Bank (3rd) [5]
Pay if insufficient provisional payments
Company provision (Income tax expense) VS SARS assessment (Actual tax payable)
- Over provision – company provided too much
- Under provision – company provided too little

DEFERRED TAX:

ASSETS/LIABILITIES

Carrying value (SFP): Tax Base:
- Accounting - Tax
- IFRS - Income tax legislation

Temporary differences
[1] Taxable → will have to pay more tax in future
[2] Deductible → paying too much now, will receive benefit later

x tax rate = RESULT IN: Deferred tax
Asset: Dt (Deductible)
Liability: Ct (Taxable)
1

, − Objective & Scope (.01-.04)
− Definitions (.05-.06)

→ DT = liability/asset of IT payable/recoverable in future
o DT-liability: income tax payable in future in respect of taxable temp. differences
o DT-asset: amounts of income taxes recoverable in future in respect of deductible temporary
differences

Carrying amount of Less Tax base of the = Temporary difference
asset/liability asset/liability

Asset: Amount
deductible in future
(CA – already allowed)
Liability: Already
deducted/Not
deductible in future

Temporary difference Multiplied by Tax rate (expected in = D/T balance (asset or
future) liability) in SFP

D/T balance of Year 2 Less D/T balance of Year 1 = Movement in D/T in
SCI

[1] TAXABLE TEMPORARY DIFFERENCES
- Recognise a D/T liability (income tax payable in the future)
- ASSETS: CA > TB
- LIABILITIES: CA < TB

[2] DEDUCTIBLE TEMPORARY DIFFERENCES
- Recognise a D/T asset (income recoverable in future)
- ASSETS: CA < TB
- LIABILITIES: CA > TB
→ Unlimited taxable profit → recognise entire amount
→ Limited to taxable income in the future (require efficient evidence of future taxable income)

Accept income and expenses being taxed/deductible → earliest of receipt or accrual

Item: CA TB TD D/T Dt or Ct
DEBITS CA > TB T Ct
(Assets/EPA) CA < TB D Dt
CREDITS CA > TB D Dt
(Lia/IRA) CA < TB T Ct

− Tax Base (.07-.11)
− Recognition of current tax liabilities and current tax assets (.12-.14)
− Recognition of deferred tax liabilities and deferred tax assets
o Taxable temporary differences (.15-.23)
▪ Except: (b)(ii): E.g. office building – however, if that revalued – D/T implications
o Deductible temporary differences (.24-.45)
− Measurement (.46-.56)
o .51: through sale or use → assume assets carrying amount is recovered through use.

Example:
Asset: CP = R2000
Depr: 10 years → CA
W&t: 20 years → TB

SCI
Sales Xxx
Min Cost of sales (xxx)
Plus income Xx

2