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IAS 12

D EFER R ED TA X ATIO N

IMPORTANT ABBERIVIATIONS:
TD stands for Temporary Difference
PD stands for Permanent Difference which
cannot be reversed in the future periods
TTD stands for Taxable Temporary Difference
DTD stands for Deductible Temporary
Difference
CA stands for Carrying Amount
TB stands for Tax Base
When those TD will be reversed in the future
periods is called DTD (Inflow).
When those TD will be settled in the future
periods is called TTD (Outflow).

Assets
Liabiliies

TTD
CA>TB
CA<TBDTL

DTD
CA=TB

DTA

DTD
DTA
TTD
NO TD
DTL

NO DT

Q: FIXED ASSET= 100 MILLION


ACCOUNTING DEPRECIATION = 20%
TAX DEPRECIATION = 25%
Y1
Y2
Y3
Y5
CAA
80
60
40
TBA
75
50
25
TD
5
10
15
Deferred Tax @
1.5
3
4.5
30% (closing bal)
Opening DTL
0
1.5
3
Deferred Tax
Expense/(income) 1.5
1.5
1.5

Y4
20
0
20
6

0
0
0
0

4.5

1.5

(6)

Accounting
Profit
+ Accounting

Y1
100

20

Y2
110

20

Y3
120

20

Y4
150

20

Y5
160

20

Depreciation
- Tax Dep.
(25)
(25)
(25)
(25) (25)
Taxable Profit
95
105
115
145
180
Current Tax
28.5
31.5
34.5
43.5
54
@ 30%
Tax Expense= Current Tax + Deferred Tax
Tax Expense
30
33
36
45
48
Accounting
Profit @ 30 %

30

33

36

45

48

Accrual or Cash which comes 1st:


Accounting Book

Tax Book

1) Prepaid Expenses:

1st Jan:
Prepaid Rent

100

To Bank
100
31st Jan:
Rent Expense

Rent Expense
100

50

To Prepaid Rent 50

To Bank

100

2) Unearned Income:
Accounting Book
1st Jan:
Bank

200

Bank

To Unearned
Income
31st Jan:
Unearned
Income

Tax Book

200

100

To Income

100

200

To Income 200

3) Accrued Income:
Accounting Book
1st Jan:
Accrued Income 500
500
To Income
500
500
31st Jan:
Cash
To accrued
Income

500
500

Tax Book
Accrued Income
To Income

4) Accrued Expenses:
Accounting Book
1at Jan:
Expense 150
To Accrued
150
Expense
31st Jan:
Accrued
150
Expense
TO Cash

150

Tax Book
Expense

150

To Accrued
150
Expense

CA
TYPE TAX
Prepaid Rent
TTD
DTL
Unearned
DTD
DTA
Income
Accrued
NTD
NT
Income
Accrued
NTD
NT

50

TB
0

50

100

500

500

150

TD

150

100

Goodwill:
No deferred Tax on internally generated
Goodwill.
Initial recognition of asset/liability:
Asset Cost =
100 million
Govt. Grant =
(50) million
CA
=
50
Note:
Tax authority does not accept grant. They
consider Tax Base of 100 million. It is not a
Temporary Difference. It is a Permanent
Difference.

Revaluation of Asset:
Suppose asset CA= 100 m
Revaluation Value= 150 m
YEAR 1
Asset
50
= 150
To
R.R. 50
(100)

CA
TB =
TD

= 50
Note: Deferred tax arise due to R.R.
should be sent to equity or R.R.

Deferred Tax Expense


15
To Deferred Tax Liability
R.R.

15
To Deferred Tax Liability

15

15

YEAR 2
Revaluation depreciation of asset = 50@10%
=5
CA of revalued asset = 45
Tax Base
= 0
TTD
= 45@ 30% = 13.5

Deferred Tax Liability


of
To R.R.

1.5

(Settlement

1.5

Tax)

Deferred Tax Liability


Reverse 1.5
opening 15
Back

Closing 13.5
15

15

Foreign Payables\Receivables:
Foreign Payables= US $ 10000@85 = Rs. 850000 (at
start)
Foreign Payables=US $ 10000@90 = Rs. (900000)
( At closing date)
Exchange Loss
= Rs. (50000)
Exchange Loss 50000
To Foreign Payables 50000

Foreign Payables

CA
TB
900000 850000

Deferred Tax Asset 15000


To Deferred Tax Income

DTD
DTA
50000 15000
@ 30%

15000

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