Accounting for income tax

1. Both public and nonpublic entities are required to apply deferred tax accounting
2. taxable profit – it is the profit for a period determined in accordance with the rules established by tax
authorities upon which income taxes are payable.
3. Accounting profit –it is the profit for a period before deducting tax expense
4. Taxable temporary differences- these are differences that will result in future taxable amount in determining
taxable profit of future periods when the CA of the asset or liability is recovered or settled
5. Deductible temporary differences –these are differences that will result in future deductible amount in
determining taxable profit in future periods when the CA of the asset or liability is recovered or settled.
6. Deferred tax liability- it is the deferred tax consequences attributable to a taxable temporary difference
7. Deferred tax asset –is the deferred tax consequence attributable to a deductible temporary difference and
operating loss carry forward.
8. Current tax expense- is the amount of income tax payable in respect of the taxable profit.
9. Tax expense – it is the aggregate amount included in the determination of profit for the period in respect of
current tax and deferred tax.
10. The deferred tax expense is equal to increase in deferred tax liability less the increase in deferred tax asset.
11. Tax base –it is the amount attributable to an asset or liability for tax purpose.
12. An entity shall offset a deferred tax asset and deferred tax liability when:
a. The deferred tax and deferred tax liability relate to income taxes levied by the same taxing authority
b. The entity has a legal enforceable right to offset a current tax asset against a current tax liability
13. Taxable temporary differences –a deferred tax liability shall be recognized
14. A deferred tax asset shall be recognized for all deductible temporary differences and operating loss
carryforward when it is probable that taxable income will be available which the deferred tax asset can be
used.
15. In relation to income tax accounting :
a. Interest expense accrued but included in taxable profit on a cash basis shall be classified under deductible
temporary differences
b. Where accumulated depreciation on an asset is greater than accumulated tax depreciation, the amount
shall be classified under deductible temporary difference.
16. The tax base for a machine for tax purposes is greater than the CA in the financial statements as the end of
the reporting period will give rise to a deferred tax asset.
17. The following would required intraperiod tax allocation:
a. Discontinued operation
b. Prior period error
c. Income from continuing operations.
18. Taxable income differs from accounting income due to differences in interperiod tax allocation and permanent
differences.
19. Intraperiod tax allocation is the purpose is to relate the income tax expense to the items which affect the
amount of tax.
20. The presentation of deferred tax asset and liabilities deferred tax assets are netted against deferred tax liability
if they relate to the same tax authority.