Question

With reference to IAS 12, Income Taxes, discuss how a deferred tax provision can arise, the available methods for calculating the deferred tax provision, and the extent to which deferred tax accounting can be used for income smoothing.

Answer 1

The following points are helpful for your question.

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

2. IAS 12 requires an entity to recognise a deferred tax liability or a deferred tax asset for all temporary differences .

3. With some exceptions temporary differences are deferences between the tax basing of an asset or liability and it's carrying amount in statement of financial position.

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

5. A deferred tax liability arsises if an entity

• Has unused tax losses or tax credits.

There involved 7 steps for calculating 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 tax liability.
6. Revise other items outside the statement of financial position.
7. Add up and make up an accounting entry.

The above mentioned points are helpful to you.

Thank you.