• Solution:
31 March 2012 Dr Deferred tax liability 60,000
Cr I S 60,000
(Reduction in tax expense resulting from a decrease in tax rate ($660, X
3 = $60,000).
• Unused tax losses
• Losses incurred in previous years can be carried forward to offset taxable
profit derived in future years
• Has to satisfy “probable” test before being recognised as Deferred Tax
Asset
• Deferred tax asset recognised to the extent that it’s probable that future
taxable profit will be available which the unused tax losses and unused
tax credits can be utilised – NZ IAS 12, para. 34
THE END
• Additional self-reading slides..
Summary: SOFP (BS) Approach
•
1. We know Accounting Profit vs. Taxable Profit – this means we either
defer or accelerate tax payments……..and recognize this differences in the
form of Deferred Tax.
• 2. Which rules takes precedence in Financial Reporting? Definitely
Accounting rules and not tax rules.
• 3. Therefore even tough we calculate the company’s tax payable based on
taxation rules, we will still add or minus the taxation amount in the I S
and SOFP (BS) based on accounting profit.
• 4. The simple rule is
• Acct Profit Taxable Profit Deferred Tax
• i) More Less Liability
• ii) Less More Asset
• i) the explanation behind this is -because of the difference acct. profit vs
taxable profit due different regulations (between acct. & tax) , the
accounting profit is more and the taxable profit is less. We are therefore
paying less tax now because of Tax Rules.
• By right we should have paid more tax based Accounting Rule!.
• And we know Acct. rules take precedence over Tax rules.
• That’s why we will recognize the difference of TTD as a liability!
31 March 2012 Dr Deferred tax liability 60,000
Cr I S 60,000
(Reduction in tax expense resulting from a decrease in tax rate ($660, X
3 = $60,000).
• Unused tax losses
• Losses incurred in previous years can be carried forward to offset taxable
profit derived in future years
• Has to satisfy “probable” test before being recognised as Deferred Tax
Asset
• Deferred tax asset recognised to the extent that it’s probable that future
taxable profit will be available which the unused tax losses and unused
tax credits can be utilised – NZ IAS 12, para. 34
THE END
• Additional self-reading slides..
Summary: SOFP (BS) Approach
•
1. We know Accounting Profit vs. Taxable Profit – this means we either
defer or accelerate tax payments……..and recognize this differences in the
form of Deferred Tax.
• 2. Which rules takes precedence in Financial Reporting? Definitely
Accounting rules and not tax rules.
• 3. Therefore even tough we calculate the company’s tax payable based on
taxation rules, we will still add or minus the taxation amount in the I S
and SOFP (BS) based on accounting profit.
• 4. The simple rule is
• Acct Profit Taxable Profit Deferred Tax
• i) More Less Liability
• ii) Less More Asset
• i) the explanation behind this is -because of the difference acct. profit vs
taxable profit due different regulations (between acct. & tax) , the
accounting profit is more and the taxable profit is less. We are therefore
paying less tax now because of Tax Rules.
• By right we should have paid more tax based Accounting Rule!.
• And we know Acct. rules take precedence over Tax rules.
• That’s why we will recognize the difference of TTD as a liability!
