Company Reporting

1285 Words6 Pages
Table of Contents 1.0 Introduction 1 2.0 Discussion 2 2.1 Exploration and Development costs creates a Deferred Tax Liability 2 2.2 Analysis on arguments by directors 3 2.2.1 No Income Tax Expenses 3 2.2.2 No deferred tax liability 4 2.2.3 Tax losses 5 2.3 Information utility to users of financial report of deferred tax liabilities 6 3.0 Conclusion 7 References 8 1.0 Introduction Accounting Standard AASB 112 (Income Taxes) prescribe the accounting treatment for income taxes. As stated by Leo, Hoggett, & Sweeting (2012), transactions undertaken by an entity and other events affecting the entity have two separate effects, which are current and future tax consequences. This is because accrual principal is…show more content…
Development cost is capitalised over future period in determining accounting profit but deducted in the period they are incurred when calculating taxable income (IAS 12, 2012). This will cause Gravatt Ltd to pay more taxes in the future. Moreover, the company actually had a deferred tax liability of $80million. This is considered material when comparing to equity of $570million. Thus, it should be disclosed in annual report as required by AASB 1031. 2.2.3 Tax losses Directors believed that neither current tax liability nor a deferred tax liability was necessary as the company was making tax losses because of huge allowable deductions available for exploration and development costs. According to Leo, Hoggett, & Sweeting (2012), tax loss provides future deduction for the company, hence deductible temporary difference exists and deferred tax asset arises. In facts, Gravatt Ltd had an income tax expense of $24.3million instead of tax losses if it followed the accounting standard. This might be due to its taxable income was still more than tax deduction after considering the development costs. Therefore, argument of directors is invalid as according to AASB 112, tax loss arises when a company’s tax deductions exceeds its taxable income. 2.3 Information utility to users of financial report of deferred tax liabilities AASB 112 provides disclosure requirement in relation to tax in general purpose of financial statement prepared for
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