About

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

Current tax for current and prior periods is, to the extent that it is unpaid, recognised as a liability. Overpayment of current tax is recognised as an asset. Current tax liabilities (assets) for the current and prior periods are measured at the amount expected to be paid to (recovered from) the taxation authorities, using the tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

IAS 12 requires an entity to recognise a deferred tax liability or (subject to specified conditions) a deferred tax asset for all temporary differences, with some exceptions.  Temporary differences are differences between the tax base of an asset or liability and its carrying amount in the statement of financial position. The tax base of an asset or liability is the amount attributed to that asset or liability for tax purposes. 

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

  • will pay less tax if it recovers the carrying amount of another asset or liability; or
  • has unused tax losses or unused tax credits.

What you should know

  • Understand how current tax is calculated and recognised.
  • Understand why the accounting profit before tax differs from taxable income.
  • Calculate over- and under-provisions of current tax and prepare the disclosure in the notes to the statement of profit or loss and other comprehensive income.
  • Understand why deferred tax is recognised as a result of temporary differences.
  • Account for the effect of temporary differences when calculating deferred tax according to the reporting date balance approach.
  • Understand and correctly account for the effect of tax rate adjustments when determining deferred tax.
  • Apply the principles for the recognition and measurement of current tax and deferred tax.
  • Present and disclose income taxes in the financial statements of an entity.
  • Understand the nature of income tax
  • Understand differences in accounting treatments and taxation treatments for a range of transactions
  • Explain the concept of tax‐effect accounting
  • Calculate and account for current taxation expense
  • Discuss the recognition requirements for current tax
  • Account for the payment of tax
  • Explain the nature of and accounting for tax losses
  • Calculate and account for movements in deferred taxation accounts
  • Apply the recognition criteria for deferred tax items
  • Account for changes in tax rates
  • Account for amendments to prior year taxes and identify other issues
  • Explain the presentation requirements of IAS 12
  • Implement the disclosure requirements of IAS 12