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IAS 12: Income Taxes
Objective: The objective of this standard is to prescribe accounting treatment for income taxes.
Scope: IAS 12 should be applied in accounting for income taxes.
Income taxes include:
• All domestic and foreign taxes the based on taxable profits
• Taxes, such as withholding taxes, payable by a subsidiary, associate or joint venture on distributions to reporting company
IAS 12 does not address:
• Investment tax credit
• Methods of accounting for government grant
However it does address the accounting for temporary differences arising due to above.
Accounting Profit is profit or loss for a period before deducting tax expense.
Taxable Profit (or tax loss) is profit (or loss) for a period,
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deferred tax liabilities = taxable temporary difference * tax rateDeferred tax assets are the amounts of income taxes recoverable in future periods in respectof: Deductible temporary difference The carryforward of unused tax losses,
• 4. Carryforward of unused tax credits i.e. deferred tax Assets = deductible temporary difference * tax rate + unused tax losses * tax rate and tax creditsDeferred Tax:Sometimes carrying amounts of assets and liabilities may be recovered or settled at anamount or at a time different than that considered for tax purposes. In such case IAS 12requires an entity to recognise deferred tax liability or deferred tax asset so as to recognisethe deferred tax effects in the current financial statements as if those differences did notexists.This standard also deals with: The recognition of deferred tax assets arising from unused tax losses and unused tax credits The presentation of income taxes in financial statements, and Disclosure of information relating to income taxesSpecial Points:When any transaction gives rise to any asset or liability, but does not affect either accountingprofit or taxable profit at the time of transaction then IAS 12 does not permit an entity torecognise deferred tax asset or deferred tax liability.A deferred tax liability should not be recognised when it arises fromThe initial recognition of Goodwill orInitial recognition
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