Anda di halaman 1dari 22

DEFERRED TAX [IAS 12] LEARNING OBJECTIVES

Understand concept of deferred tax Contrast current tax & deferred tax Compute deferred tax:

Income statement approach Balance sheet approach

Recognition of deferred tax assets Disclosure in financial statements

DEFERRED TAX [IAS 12]

DEFERRED TAX [IAS 12] KEY FOCUS AREAS


Exemption office buildings Recoupment & Capital profit Utilisation of assessed losses Deferred tax assets Change of intention

DEFERRED TAX [IAS 12]

DEFERRED TAX [IAS 12] DEFINTION

PROVISION vs EXPENSES

Framework definitions IAS 37 Provisions & Contingencies Liability & Asset Recognition criteria Probable & Measurement Expenses [transfer]

APPROACH

Balance sheet [IAS 12 p9] [Carrying amount vs Tax base] [Movement = expense/transfer to I/S] Income statement [Accounting profit vs Tax profit]

DEFERRED TAX [IAS 12]

DEFERRED TAX [IAS 12] MEASUREMENT p46

MEASUREMENT

Expected amount paid or recovered Future liability/asset Conditions prevailing at year end Based on future recovery/settlement Probable & reliably measured

TAX RATE Tax rate at year end Tax rate substantially enacted In budget speech Passed by parliament AC 502 in speech

IMPACT

Different rates applied Company tax actual rate Deferred tax enacted rate

DEFERRED TAX [IAS 12]

DEFERRED TAX [IAS 12] MEASUREMENT p46

28/02/X6

Year ended [Rate at year end] Rate enacted [Effective 30/04/X6] Year ended [Co. tax actual rate] [Defer tax enacted] Year ended [Enacted rate]

15/03/X6

31/03/X6

30/04/X6

DEFERRED TAX [IAS 12]

DEFERRED TAX [IAS 12] RATE CHANGE p47

SUBSTANTIALLY ENACTED

By year end

APPLICATION

Adjust balance at beginning of year Apply new rate at year end

BALANCE SHEET

Measured at rate enacted

INCOME STATEMENT

Effect of change in rate Movement for the year


DEFERRED TAX [IAS 12]
6

DEFERRED TAX [IAS 12] RATE CHANGE p47

REVALUATION OF ASSETS

Match deferred tax with reserve Revaluation method [Revaluation reserve balance sheet] Fair value method [Tax expense income statement]

CHANGE IN RATE

Adjustment is matched to reserve Revaluation method [Revaluation reserve balance sheet] Fair value method [Tax expense income statement]
DEFERRED TAX [IAS 12]

DEFERRED TAX [IAS 12] EXEMPTIONS p15

GOODWILL [p15(a)]

Initial recognition

INITIAL RECOGNITION [p15(b)]


Initial recognition of assets & liabilities Not business combination Not affect accounting or tax profit

Accounting or tax profit [p15(b)(ii)]


Initial recognition of assets & liabilities At time of transaction Not affect accounting nor tax profit e.g. Administrative buildings Depreciated [accounting] No wear & tear [tax]

DEFERRED TAX [IAS 12]

DEFERRED TAX [IAS 12] EXEMPTIONS p15(b)


EXCLUSIONS

Revaluation of assets & liabilities Subsequent to initial recognition

ILLUSTRATION:
BUILDING [OFFICES] 01/01/X4 Purchased [cost] R450 000 31/12/X6 Carrying amount R382 500 [depreciated @ 5% p.a] [no deduction for tax] 31/12/X6 Fair value [NRC] R430 000 Rate = 30%

DEFERRED TAX [IAS 12]

DEFERRED TAX [IAS 12] EXEMPTIONS p15(b)


ILLUSTRATION: SOLUTION
31/12/X6 Fair value [NRC] 430 000 Tax base Nil . Temporary difference 430 000 Exempt [based on cost] 382 500 Temporary difference 47 500 Deferred tax @ 30% 14 250
NB: Initial recognition is exempt [Carrying value based on cost] Subsequent recognition [valuation] [Not exempt subject to deferred tax]

DEFERRED TAX [IAS 12]

10

DEFERRED TAX [IAS 12] MEASUREMENT p51

INTENTION

Reflect manner liability is settled Managements intention at year end Based on future intention of company Value in use [continued future use]
Through disposal

VALUE IN USE

Through ordinary business [Assets = depreciation/wear & tear]

THROUGH DISPOSAL

Profit realised on disposal Separate profit between Recoupment [company tax] Capital profit [CGT]
DEFERRED TAX [IAS 12]
11

DEFERRED TAX [IAS 12] MEASUREMENT p51

CHANGE OF INTENTION

Assess intention at year end Change of intention Revalue asset to account for change Recalculate deferred tax

ILLUSTRATION:
31/12/X6 Original cost R500 000 Carrying value R300 000 Tax base R240 000 Recoverable amount [net sale value] R550 000 Tax rate = 30% CGT = 50% of tax rate
DEFERRED TAX [IAS 12]
12

DEFERRED TAX [IAS 12] MEASUREMENT p51


ILLUSTRATION: SOLUTION
Carrying value 300 000 Tax base 240 000 Temporary difference 60 000 Deferred tax [value in use] 18 000 Recoverable amount Carrying value Profit Recoupment Capital profit Deferred tax: recoupment 78 000 capital profit 7 500 85 500
DEFERRED TAX [IAS 12]

C/value 550 000 300 000 250 000

Tax base 550 000 240 000 310 000 260 000 50 000

13

DEFERRED TAX [IAS 12] MEASUREMENT p51


ILLUSTRATION: SOLUTION
DR: ACCUM DEPR 260 000 CR: MACHINERY 260 000 [Reversing depreciation on revaluation]

DR: MACHINERY 310 000 CR: REVALUE RESERVE 310 000 [Revaluation of machinery] DR: REVALUE RESERVE 67 500 CR: DEFERRED TAX 67 500 [Adjust deferred tax for change of intention]
DEFERRED TAX [IAS 12]

14

DEFERRED TAX [IAS 12] ASSESSED LOSS p34

ASSESSED LOSS [IAS 12 p34]

Represents a future tax relief [Set off against future taxable income] Give rise to deferred tax asset

DEFERRED TAX ASSETS


Recovery depends on future profit Recognition criteria [IAS 12 p36] Sufficient temporary differences Future profitability Non-recurring cause for loss Tax plan for turn around

DEFERRED TAX [IAS 12]

15

DEFERRED TAX [IAS 12] ASSESSED LOSS p34

LIMITATION [IAS 12 p35]

Deferred tax assets is limited to: Extent of temporay differences [credit balance of deferred tax] [reduced to a nil balance] Sufficient future taxable income [supporting evidence p82]

ILLUSTRATION:
31/12/X7 Carrying value Tax base (a) Profit (b) Loss Rate = 30%
DEFERRED TAX [IAS 12]

R450 000 R120 000 R180 000 R50 000

16

DEFERRED TAX [IAS 12] ASSESSED LOSS p34


ILLUSTRATION: SOLUTION
Carrying value Tax base Temporary difference Deferred tax
(a) Profit/Loss Temp difference Assessed loss

450 000 120 000 330 000 99 000


(b)

180 000 <50 000> <330 000> <330 000> <150 000> <380 000>

DEFERRED TAX [IAS 12]

17

DEFERRED TAX [IAS 12] ASSESSED LOSS p34


ILLUSTRATION: SOLUTION
(a) (b)

Temp difference 330 000 330 000 Assessed loss <150 000> <380 000> Net Temp difference 180 000 <50 000> Deferred tax liability 54 000 Deferred tax asset <15 000> NB: Deferred tax asset: Limitation assess loss of R330 000 [Deferred tax asset unrecognised] Recognised assess loss R380 000
DEFERRED TAX [IAS 12]
18

DEFERRED TAX [IAS 12] ASSESSED LOSS p34


ILLUSTRATION: SOLUTION
(a) DR: DEFERRED TAX 45 000 CR: TAX EXPENSE 45 000 [Deferred tax i.r.o tax loss] (b) RECOGNISED ASSET DR: DEFERRED TAX 114 000 CR: TAX EXPENSE 114 000 [Deferred tax i.r.o tax loss] UNRECOGNISED DR: DEFERRED TAX 99 000 CR: TAX EXPENSE 99 000 [Deferred tax i.r.o tax loss]
DEFERRED TAX [IAS 12]

19

DEFERRED TAX [IAS 12] UNRECOGNISED p37

DEFERRED TAX ASSET

Previously unrecognised [Limited to zero balance] Re-assessed at each year end Recognised to extent: Future profit are probable

ACCOUNTING TREATMENT

Re-instate unrecognised asset Re-instate at beginning of year [current years tax rate] Provide for current years differences

DEFERRED TAX [IAS 12]

20

DEFERRED TAX [IAS 12] UNRECOGNISED p37


ILLUSTRATION:
31/12/X7 31/12/X6
Carrying amount Tax base 560 000 750 000 730 000 910 000

The tax rate remained 30%. At 31/12/X6 there was uncertainty about the future taxable income.
At 31/12X7 there was certainty that the company will earn taxable income in future years.

DEFERRED TAX [IAS 12]

21

DEFERRED TAX [IAS 12] UNRECOGNISED p37


ILLUSTRATION: SOLUTION
C/value T/base Diff D/tax

31/12/X6 560 000 730 000 -170 000 -51 000 31/12/X7 750 000 910 000 -160 000 -48 000 Provision for year 3 000 31/12/X7: DR: DEFERRED TAX 51 000 CR: TAX EXPENSE 51 000 [Recognise previously unrecognised asset] DR: TAX EXPENSE 3 000 DR: DEFERRED TAX 3 000 [Deferred tax provision for the year]
DEFERRED TAX [IAS 12]

22