Question

Its about deffered taxation IAs 12 how to solve it

Answer 1

1A) Deferred tax liability is a tax that is assessed or is due for the current period but has not yet been paid. The deferral comes from the difference in timing between when the tax is accrued and when the tax is paid. A deferred tax liability records the fact the company will, in the future, pay more income tax because of a transaction that took place during the current period, such as an installment sale recevable.In other words define the deferred tax liability is the amount of taxes a company has "underpaid"—which will (eventually) be made up in the future. By saying it has underpaid doesn't necessarily mean that it hasn't fulfilled its tax obligatons, rather it is recongnizing that the obligation is paid on a different timetables

Example-: a company that earned net income  for the year knows it will have to pay corporate income taxes. Because the tax liability applies to the current year, it must also reflect an expense for the same period. But the tax will not actually be paid until the next calendar year. In order to rectify the accrual/cash timing difference is to record the tax as a deferred tax liability.

IAS 12 prescribes the accounting treatment for income taxes. Income taxes include all domestic and foreign taxes that are based on taxable profits.

Current tax for current and prior periods is, to the extent that it is unpaid, recognised as a liability. Overpayment of current tax is recognised as an asset. Current tax liabilities (assets) for the current and prior periods are measured at the amount expected to be paid to (recovered from) the taxation authorities, using the tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

IAS 12 requires an entity to recognise a deferred tax liability or (subject to specified conditions) a deferred tax asset for all temporary differences, with some exceptions. Temporary differences are differences between the tax base of an asset or liability and its carrying amount in the statement of financial position. The tax base of an asset or liability is the amount attributed to that asset or liability for tax purposes.

A deferred tax liability arises if an entity will pay tax if it recovers the carrying amount of another asset or liability. A deferred tax asset arises if an entity:

• will pay less tax if it recovers the carrying amount of another asset or liability; or
• has unused tax losses or unused tax credits

Deferred tax are two types one is deferred tax liabilities or deferred tax assets.deferred tax liabilities is the amounts of income taxes payable in future periods in respect of taxable temporary differences.and deferred tax asset means the amounts of income taxes recoverable in future periods in respect of deductible temporary differences, the carry forward of unused tax losses, and the carryforward of unused tax credits.

Calculation of deferred taxes in IAS 12

Deferred tax assets or liabilty = Temporary difference x Tax rate

Temporary difference = Carrying amount - Tax rate

some cases deferred taxes arising from unused tax losses or unused tax credits.

Deferred tax assets = unused tax loss or unused tax credits x Tax rate.

In this following decribing how to measure the deferred tax liability or assets.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates/laws that have been enacted or substantively enacted by the end of the reporting period. The measurement reflects the entity's expectations, at the end of the reporting period, as to the manner in which the carrying amount of its assets and liabilities will be recovered or settled.

The IAS 12 provides the the following guidance on measuring deferred taxes:

1, Where the tax rate or tax base is impacted by the manner in which the entity recovers its assets or settles its liabilities (e.g. whether an asset is sold or used), the measurement of deferred taxes is consistent with the way in which an asset is recovered or liability settled

2. Where deferred taxes arise from revalued non-depreciable assets (e.g. revalued land), deferred taxes reflect the tax consequences of selling the asset.

3, Deferred taxes arising from investment property measured at fair value under IAS 40 investment property  reflect the rebuttable presumption that the investment property will be recovered through sale

4, If dividends are paid to shareholders, and this causes income taxes to be payable at a higher or lower rate, or the entity pays additional taxes or receives a refund, deferred taxes are measured using the tax rate applicable to undistributed profits.

The following formula summarises the amount of tax to be recognised in an accounting period

Tax to recongnise for the period= Current tax for the period + movement in deferred tax balances for the period

There are few steps for calculation the deferred tax.

1, List all assets and liabilities into a table.

2, Calculate tax bases

3, Calculate temporary differences

4, Determine applicable tax rate

5, Calculate deferred tax asset or deferred liablity.

6, Revise other items outside the statement of financial position

7, Add up and Make up an accounting entry.

deferred tax calculation will depend on the specific transactions you might have in your company .Also need to make the calculation in line with all the rules set in IAS 12.

Thank you...........!