All India Chain Workshop on Indian
Accounting Standards Converged with IFRS
Income Taxes (IAS 12)
CA Bhupendra Mantri, Jaipur (India)
FCA, DISA(ICAI)
+919829888810
[email protected]
1
Agenda
• IAS 12 terminology
• Examples explaining terminology
• Recognition & Measurement Principle
– Current Tax Asset / Liability
– Deferred Tax Asset / Liability
• Application of Principles
• Disclosures
Certain terms defined
• Temporary Differences
– Difference between carrying amount and tax base
Tax Base
– Tax Base of an asset is the amount that will be
deductible for tax purposes against any taxable
economic benefits that will flow to the entity
when it recovers the carrying amount of the asset.
– Tax Base of a liability is its carrying amount, less
any amount that will be deductible for tax
purposes in respect of that liability in future
periods.
Example clarifying terminology
• Cost of Building – 100 lac. Accumulated
Depreciation for tax purposes – Rs.30 lac.
Accumulated Depreciation as per books – Rs.
50 lac. Specify tax base and temporary
difference
• Interest receivable
• Trade receivable
• Dividend receivable
• Loan receivable
Example clarifying terminology
• Accrued expenses in current liabilities. Expenses
allowable for tax purpose on cash basis
• Accrued expenses in current liabilities. Expenses
allowed for tax purpose
• Interest revenue received in advance. Taxable on
cash basis
• Fines and penalties not deductible for tax
purpose
• Loan payable
Current Tax Asset / Liability –
Recognition & Measurement
• Compare the amount due for the period and
amount paid for the period
– Recognise asset / liability accordingly
• Measure at the amount to be paid to
(recovered from) taxation authorities
• Present current tax based on the item to
which it relates is presented
Example on Current Tax
• A Ltd. declared in May 2009 as dividend of
Rs.40lac. The profit before tax was Rs.40000
lac during the year ended on 31 March 2009.
The tax rate on undistributed profit is 30% and
an additional 15% is payable on profits
distributed as dividends. Which tax rate
should A Ltd. apply on profits for the year
ended 31 March 2009?
Example on Current Tax
• A Ltd. has given a loan to its subsidary B Inc. A
Ltd. made a trading profit of Rs.20 lac during
the yr. The exchange loss recognised on the
loan amounts to Rs.10 lac. The loan is
regarded by A Ltd. as net investment in
subsidiary B Inc. Tax rate is 50%. How much
current tax would be recognised and where
would it be presented?
Deferred Tax Asset / Liability –
Recognition & Measurement
• Recognise DTL for all Taxable Temporary
Differences that meet the basic concept
• Recognise DTA for all Deductible Temporary
Differences
– Probability of availability of sufficient taxable profit
– Same criteria for Unabsorbed Loss / Depreciation
(ULD)
– Reassess recognised and unrecognised DTA at each
reporting date
• Measurement Principle
• No Discounting
Deferred Tax Table
Asset
Liability
CA > Tax Base
DTL
DTA
Tax Base > CA
DTA
DTL
Deferred Tax Asset / Liability - Concept
• Recognise deferred tax liability (asset) if recovery or
settlement of the carrying amount of an asset or liability
makes future tax payments larger (smaller) than they
would be if it were to have no tax consequences
• Exception to the above principle
– Initial recognition of Goodwill (Only for Deferred Tax Liability)
– Temporary Difference arising on initial recognition not due to
business combination and measurement with no effect on tax
profit(loss)
– Investments in subsidiaries, associates and JVs
• The parent, investor or venturer is able to control the timing of the
reversal of the temporary differences; and
• It is probable that the temporary difference will not reverse in the
foreseeable future
SIC 25 – Changes in Tax Status of an
Entity or its shareholders
• Para 4 of SIC 25
“The current and deferred tax consequences of
a change in tax status shall be included in
profit or loss for the period, unless those
consequences relate to transactions and
events that result, in the same or different
period, in a direct charge or credit to the
recognised amount of equity or in amounts
recognised in other comprehensive income”.
SIC 21 – Recovery of Revalued Non
Depreciable Assets
• Para 5 states
“….If the tax law specifies a tax rate applicable
to the taxable amount derived from the sale of
an asset that differs from the tax rate
applicable to the taxable amount derived from
using an asset, the former rate is applied in
measuring the deferred tax liability or asset
related to a non-depreciable asset”
Deferred Tax Principle Explained –
Subsidiaries, Associates & JVs
• Recognise DTL on undistributed profits of
associates
• Recognise DTL on undistributed profits of joint
ventures
– The venturer should not have control on dividend
distribution decision
• Recognise DTA only if
– Probable that the DTD will reverse in future; and
– Availability of sufficient taxable profit in future
Disclosures
• Changes in Tax rates to be explained
• Amount and expiry date of unrecognised DTD
• Amount of TTD for which DTL is not recognised in case
of investments in subs., associates and JVs For each
type of temporary difference and for each type of
unused tax loss / credits
– Amount of DTA & DTL recognised in SOFP
– Amt. of DTI / DTE recognised in profit or loss
• In respect of discontinued operation, tax expense
relating to:
– Gain / loss on discontinuance; and
– Profit / Loss for the period
Disclosures
• Business Combination
– Amount of change in deferred tax asset of the acquirer due
to business combination
– Deferred tax benefits received in business combination
that is recognised after the acquisition date
• Amount of DTA and nature of evidence supporting its
recognition
– DTD > TTD
– The entity has loss in current or preceding period
• Tax consequences of Dividend proposed as well as not
proposed