PAS 12 Income Taxes

• Income taxes are taxes that are based on taxable profits
• It is the profit or loss for a period before deducting the tax expense

  Accounting Profit
• It is the profit or loss for a period determined in accordance with the rules and established by the taxation authorities, upon which income taxes are payable (recoverable)

  Taxable profit (tax loss)
• The difference between accounting profit and taxable profit is due to differences in measurement bases used in preparing financial statements and determining taxable profit.
• It is the total amount included in the determination of profit or loss for the period. It compromises current tax expense and deferred tax expense


  Tax expense or income tax expense
• It is the amount of income taxes payable (recoverable) in respect of the taxable profit for a period


  Current tax or current tax expense
• It is the sum of the net changes in the deferred tax assets and deferred tax liabilities during the period

  Deferred tax expense or income or benefit
• 1. If increase in deferred tax liability exceeds increase in deferred tax asset, the difference is deferred tax expense
  2. If the increase in deferred tax asset exceeds the increase in deferred tax liability, you have tax income or benefit
• Income tax expense = current tax expense + deferred tax expense or - deferred tax benefit
• current tax expense is the amount we paid to the BIR. on the other hand, income tax expense is the amount presented in the statement of comprehensive income while difference are to be reconciled in notes
• Permanent Differences

  1. arises when income and expenses enter into the computation either of accounting profit or taxable profit but not both.
  2. Usually arises from non - deductible expenses and non - taxable expenses and those already been excluded from the income tax return
  3. Do not have future tax consequences
  4. Do not giver rise to deferred tax asset or liability
• It is the difference between the CA of an asset or liability and its tax base

  Temporary Difference
• Those that results from taxable amounts when the carrying amount of the asset or liability are recovered or settled

  Taxable temporary difference
• Those that results to future deductible amount when the CA of assets or liabilities is recovered or settled

  Deductible Temporary Differences
• Taxable temporary difference - gives rise to deferred tax liabilities e.g accrued revenue

  Deductible temporary difference - gives rise to deferred tax asset e.g unearned revenue, deferred revenue
• Taxable temporary difference arises when

  1. Accounting profit is greater than the taxable income
  2. CA of asset is greater than the tax base
  3. CA of liability is less than its tax base
• taxable temporary difference multiplied by tax rate is equal to deferred tax liability
• It is the amount of income taxes that are payable in the future periods in respect of taxable temporary difference

  Deferred tax liability
• These are the amounts of income taxes that are recoverable in the future periods in respect of

  1. deductible temporary difference
  2. the carryforward of unused tax losses
  3. the carryforward of unused tax credits

  Deferred Tax Assets
• This is the difference between accounting profit and taxable profit that originate in one period in reverse in one or more subsequent periods

  Timing differences
• The tax base is the amount attributed to that asset or liability for tax purposes
• Under PAS 12, it is stated that " an entity shall, with certain limited exceptions, recognized a deferred tax liability or asset whenever recovery or settlement would make future payments larger or smaller than they would be if such recovery or settlement were to have to tax consequences"
• Deferred tax asset and liabilities are measured at the tax rates that are expected to apply to the period of their reversal , based on the tax rate that have been substantively enacted by the end of the reporting period
• summary of concept