Summary Income tax Ias12 (current tax and deferred tax)

Study unit 1 Chapter 5 & 6

Income tax
1.1. Current tax expense
• Note! If asset is sold at a loss = only (iii) and (iv) – see below

Profit before tax / accounting profit xxx
Non-taxable and non-deductible differences
Less: Dividend income declared dividend x shareholding% x 80% (only if dividend tax applicable)

Less: Lease income (SU 7) (xxx)

Plus: Fines xxx
Less: Fair value adjustment not subject to CGT - land * investment property * (FV adjustment x CGT exclusion% (22.4%))
Plus: Depreciation - buildings * when SARS does not allow w&t, depr comes here *
* when SARS does not allow w&t, impairment loss here *
Plus: Impairment loss - buildings
(CA start balance - current year depr) – RA
(i) Less: Acc capital gain with equipment Proceeds from sale – original cost price
(ii) Plus: Taxable capital gain with equipment (proceeds from sale - original cost price) x 80%
* if loss is made with asset sales = ignore these 2 (i and ii), just do (iii and iv) *

Taxable / deductible temporary differences
Plus: Depreciation – equipment/vehicle/etc xxx
Less: Wear and tear - equipment/vehicle/etc original cost x wear and tear allowance %

Plus: Impairment - vehicle carrying value end balance - recoverable amount
Plus: Impairment loss of vehicle (after accident)
CA – RA (in case where asset is written off, RA = 0)
Less: Scrapping of vehicle (after serious accident)
original cost price x wear and tear allowance % x years
* when vehicles are written off *

(iii) Less: Acc non-capital gain with equipment Profit from sale (proceeds – CA) – capital gain limited to CP

(iv) Plus: Recoupment with sale of equipment proceeds with sale limited to purchase price - tax base

Less: Fair value adjustment subject to CGT - land * investment property * (FV adjustment x CGT taxable% (77.6%))
Plus: Finance cost on lease liability (SU 7) xxx
Less: Lease payment (SU 7) (xxx)
Plus: Prepaid expense (previous year) xxx
Less: Prepaid expense (current year) (xxx)
Plus: Income received in advance xxx
Less: Income receivable (xxx)
Plus: Expense payable xxx
Plus: Provision for leave payment provision end balance – provision opening balance
Plus: Credit losses xxx
Allowance for credit losses:
Plus: Acc allowance 20X2 xxx
Less: Acc allowance 20X1 (xxx)
Less: Tax allowance 20X2 acc allowance 20X2 x 25%
Plus: Tax allowance 20X1 acc allowance 20X1 x 25%

Taxable profit before utilisation of unused tax loss xxx
Less: Assessed loss brought forward assessed loss for previous year

Taxable income xxx

Current tax expense @ 28% taxable income x 28%


• Current tax liability: Recognised for tax payable in the future (debt owing to SARS) / if current tax calculated is >R0
Dr Income tax (p/l) Cr SARS liability (SFP)



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, • Current tax asset: Recognised if amount already paid to SARS is more than amount owing / if current tax calculated is <R0
Dr SARS liability (SFP) Cr Bank (SFP)

IMPORTANT TO REMEMBER:
Current tax calc is not necessary when the assessed loss for the year is given; thus no amount should be included in the current tax line in the income
tax expense note → assessed loss = no current tax


1.2. Deferred tax (DT)
• Deferred tax is about what will happen in the FUTURE
• Deferred tax liability: Tax payable in future due to taxable/deductible temporary difference
• Deferred tax asset: Tax recoverable in future in respect of taxable/deductible temporary differences
• Recognition of DT adjustments:
− In P/L = if temporary difference arose due to something in P/L
− In OCI = if temporary difference arose due to something in OCI

Calculate the deferred tax (statement of financial position approach)

• DT balance = expected FUTURE tax payable / deductible on expected FUTURE transaction already recognized in FS
• CGT rate (22.4%) = CGT taxable rate (for example 80%) x tax rate (28%)
• Asset: CA > TB = L ; CA < TB = A Liability: CA > TB = A ; CA < TB = L
• Deferred tax liabilities: Dr Income tax expense (p/l) Cr Deferred tax (SFP)
• Deferred tax assets: Dr Deferred tax (SFP) Cr Income tax expense (p/l)

CM = Cost model; RIA = Received in advance; CL = credit losses


Carrying Amount Temporary
Tax Base (TB) Rate Deferred Tax (DT)
(CA) Difference (TD)
Opening balance xxx xxx xxx xxx

Movements
Assessed loss xxxi - CA – tax base 28% xxx P/L

Bank and cash End balance End balance - 28% - P/L

Building FV at year end

Historical CA HCA at year end TB at year end CA – tax base 28% - P/L

Revaluation Balancing amount - CA – tax base 28% ( xxx ) OCI

Equipment (CM) CA at year end TB at year end CA – tax base 28% xxx P/L

Equipment (use & sell) FV at year end

CA less res. value Balancing amount - CA – tax base 28% ( xxx ) OCI

Res. value less cost RV – CP - CA – tax base 22.4% ( xxx ) OCI

Below cost Cost price TB at end of year CA – tax base 28% ( xxx ) P/L

Goodwill (intangible A) End balance - CA – tax base 28% Exempt P/L

Income RIA xxx - CA – tax base 28% xxx P/L

Land (investment P) FV at year end

Cost Cost price Cost price - 28% - P/L

Above cost Balancing amount - CA – tax base 22.4% ( xxx ) P/L

Long-term loan End balance End balance - 22.4% - P/L

Trade debtors
Gross debtors End balance End balance - 28% - P/L

Allowance for CL xxx AFCL x 25% CA – tax base 28% xxx P/L

Website (intangible A) xxx - CA – tax base 28% ( xxx ) P/L

Closing balance xxx xxx xxx xxx


IMPORTANT: if asset is held for UNDETERMINED use = treat like investment property; if USED building bought → TB = 0; financial assets
should also be included in calc above → at CGT rate to OCI



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