IAS 12
Income Tax Expense
Introduction
o IAS 12 Objective: to ensure the appropriate amount of tax is disclosed in the financial
statements of an entity
To prescribe the recognition, measurement and disclosure
o Applicable to:
▪ SA tax levied on taxable profits
▪ Foreign taxes levied on taxable profits from foreign sources
▪ Withholding taxes (dividends) payable by an entity on distributions received
o Tax Expense:
▪ Current tax: amount expected to be paid/recovered from SARS using tax rates &
laws enacted/substantively enacted by the end of the reporting period
▪ Deferred tax: results from timing differences between accounting and tax
treatment of assets and liabilities
Current Tax
o Current Liability: unpaid current tax for current and preceding periods Must be assessed
at amount
o Current Asset: tax for current and previous periods is paid in advance (provisional expected to be
payment) paid/recovered
from SARS
o Amount of current tax = accounting estimate until tax return is received
Correction of accounting estimate takes place in period in which tax return is received &
shown as under/over provision of current tax expenses income
o Taxable Income: accounting profit adjusted for non-deductibles, non-taxables &
temporary differences (deferred tax)
Capital Gains Tax
o Difference between proceeds on disposal & ‘base cost’
o Taxable Income = (proceeds – base cost/tax base) x 80%
o Tax Base = cost – wear & tear allowances
Therefore, it is the future wear & tear allowances available
o Capital Loss: offset against capital gains/ carry forward to subsequent year
Deferred Tax
o Obligation/asset that will be payable/recoverable at a future date when an entity
recovers/settles asset & liabilities at carrying amounts
o Liability: income tax payable in future periods in respect of taxable temporary
differences
o Asset: amount of income tax that will be recoverable in future periods in respect of
▪ Deductible temporary differences
, ▪ Carry-forward of unused tax losses
▪ Carry-forward of unused tax credits
o Difference between tax & accounting is temporary therefore what is ‘saved’ now will be
paid later
Therefore, accrue for increase in future current tax through deferred tax
Deferred Tax Account Movement Temporary Differences
originate
reverse
Until the balance is eventually 0 (for that item)
o Reporting Date Balance Approach: balance recalculated at end of each reporting
period based on temporary differences as at reporting date
Movement is recognized as part of income tax expense (p/l)
o Tax loss current tax asset, only used to reduce any tax payable in future years
o Carrying amount – tax base = temporary difference
x
tax rate
deferred tax liability deferred tax asset
exempt
o Calculation Table: this will not be part of a required, but is just a suggested faster method
to calculate deferred tax – therefore if you don’t use your values from this table in
answering the required, the entire table will not be marked
Asset/Liability Carrying Amount Tax Base Temp Difference Deferred Tax
@ 27%
Eg: Equipment 80 000 60 000 20 000 5400
o Difference between carrying amount and tax base represents future tax consequences
= deferred tax
Will have to be paid whether asset is recovered through use/sale
o Recoupment = reversal of previous tax saving
Temporary Differences
o CA – TB
Income Tax Expense
Introduction
o IAS 12 Objective: to ensure the appropriate amount of tax is disclosed in the financial
statements of an entity
To prescribe the recognition, measurement and disclosure
o Applicable to:
▪ SA tax levied on taxable profits
▪ Foreign taxes levied on taxable profits from foreign sources
▪ Withholding taxes (dividends) payable by an entity on distributions received
o Tax Expense:
▪ Current tax: amount expected to be paid/recovered from SARS using tax rates &
laws enacted/substantively enacted by the end of the reporting period
▪ Deferred tax: results from timing differences between accounting and tax
treatment of assets and liabilities
Current Tax
o Current Liability: unpaid current tax for current and preceding periods Must be assessed
at amount
o Current Asset: tax for current and previous periods is paid in advance (provisional expected to be
payment) paid/recovered
from SARS
o Amount of current tax = accounting estimate until tax return is received
Correction of accounting estimate takes place in period in which tax return is received &
shown as under/over provision of current tax expenses income
o Taxable Income: accounting profit adjusted for non-deductibles, non-taxables &
temporary differences (deferred tax)
Capital Gains Tax
o Difference between proceeds on disposal & ‘base cost’
o Taxable Income = (proceeds – base cost/tax base) x 80%
o Tax Base = cost – wear & tear allowances
Therefore, it is the future wear & tear allowances available
o Capital Loss: offset against capital gains/ carry forward to subsequent year
Deferred Tax
o Obligation/asset that will be payable/recoverable at a future date when an entity
recovers/settles asset & liabilities at carrying amounts
o Liability: income tax payable in future periods in respect of taxable temporary
differences
o Asset: amount of income tax that will be recoverable in future periods in respect of
▪ Deductible temporary differences
, ▪ Carry-forward of unused tax losses
▪ Carry-forward of unused tax credits
o Difference between tax & accounting is temporary therefore what is ‘saved’ now will be
paid later
Therefore, accrue for increase in future current tax through deferred tax
Deferred Tax Account Movement Temporary Differences
originate
reverse
Until the balance is eventually 0 (for that item)
o Reporting Date Balance Approach: balance recalculated at end of each reporting
period based on temporary differences as at reporting date
Movement is recognized as part of income tax expense (p/l)
o Tax loss current tax asset, only used to reduce any tax payable in future years
o Carrying amount – tax base = temporary difference
x
tax rate
deferred tax liability deferred tax asset
exempt
o Calculation Table: this will not be part of a required, but is just a suggested faster method
to calculate deferred tax – therefore if you don’t use your values from this table in
answering the required, the entire table will not be marked
Asset/Liability Carrying Amount Tax Base Temp Difference Deferred Tax
@ 27%
Eg: Equipment 80 000 60 000 20 000 5400
o Difference between carrying amount and tax base represents future tax consequences
= deferred tax
Will have to be paid whether asset is recovered through use/sale
o Recoupment = reversal of previous tax saving
Temporary Differences
o CA – TB
