Beruflich Dokumente
Kultur Dokumente
Understand concept of deferred tax Contrast current tax & deferred tax Compute deferred tax:
Exemption office buildings Recoupment & Capital profit Utilisation of assessed losses Deferred tax assets Change of intention
PROVISION vs EXPENSES
Framework definitions IAS 37 Provisions & Contingencies Liability & Asset Recognition criteria Probable & Measurement Expenses [transfer]
APPROACH
Balance sheet [IAS 12 p9] [Carrying amount vs Tax base] [Movement = expense/transfer to I/S] Income statement [Accounting profit vs Tax profit]
MEASUREMENT
Expected amount paid or recovered Future liability/asset Conditions prevailing at year end Based on future recovery/settlement Probable & reliably measured
TAX RATE Tax rate at year end Tax rate substantially enacted In budget speech Passed by parliament AC 502 in speech
IMPACT
Different rates applied Company tax actual rate Deferred tax enacted rate
28/02/X6
Year ended [Rate at year end] Rate enacted [Effective 30/04/X6] Year ended [Co. tax actual rate] [Defer tax enacted] Year ended [Enacted rate]
15/03/X6
31/03/X6
30/04/X6
SUBSTANTIALLY ENACTED
By year end
APPLICATION
BALANCE SHEET
INCOME STATEMENT
REVALUATION OF ASSETS
Match deferred tax with reserve Revaluation method [Revaluation reserve balance sheet] Fair value method [Tax expense income statement]
CHANGE IN RATE
Adjustment is matched to reserve Revaluation method [Revaluation reserve balance sheet] Fair value method [Tax expense income statement]
DEFERRED TAX [IAS 12]
GOODWILL [p15(a)]
Initial recognition
Initial recognition of assets & liabilities Not business combination Not affect accounting or tax profit
Initial recognition of assets & liabilities At time of transaction Not affect accounting nor tax profit e.g. Administrative buildings Depreciated [accounting] No wear & tear [tax]
ILLUSTRATION:
BUILDING [OFFICES] 01/01/X4 Purchased [cost] R450 000 31/12/X6 Carrying amount R382 500 [depreciated @ 5% p.a] [no deduction for tax] 31/12/X6 Fair value [NRC] R430 000 Rate = 30%
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INTENTION
Reflect manner liability is settled Managements intention at year end Based on future intention of company Value in use [continued future use]
Through disposal
VALUE IN USE
THROUGH DISPOSAL
Profit realised on disposal Separate profit between Recoupment [company tax] Capital profit [CGT]
DEFERRED TAX [IAS 12]
11
CHANGE OF INTENTION
Assess intention at year end Change of intention Revalue asset to account for change Recalculate deferred tax
ILLUSTRATION:
31/12/X6 Original cost R500 000 Carrying value R300 000 Tax base R240 000 Recoverable amount [net sale value] R550 000 Tax rate = 30% CGT = 50% of tax rate
DEFERRED TAX [IAS 12]
12
Tax base 550 000 240 000 310 000 260 000 50 000
13
DR: MACHINERY 310 000 CR: REVALUE RESERVE 310 000 [Revaluation of machinery] DR: REVALUE RESERVE 67 500 CR: DEFERRED TAX 67 500 [Adjust deferred tax for change of intention]
DEFERRED TAX [IAS 12]
14
Represents a future tax relief [Set off against future taxable income] Give rise to deferred tax asset
Recovery depends on future profit Recognition criteria [IAS 12 p36] Sufficient temporary differences Future profitability Non-recurring cause for loss Tax plan for turn around
15
Deferred tax assets is limited to: Extent of temporay differences [credit balance of deferred tax] [reduced to a nil balance] Sufficient future taxable income [supporting evidence p82]
ILLUSTRATION:
31/12/X7 Carrying value Tax base (a) Profit (b) Loss Rate = 30%
DEFERRED TAX [IAS 12]
16
180 000 <50 000> <330 000> <330 000> <150 000> <380 000>
17
Temp difference 330 000 330 000 Assessed loss <150 000> <380 000> Net Temp difference 180 000 <50 000> Deferred tax liability 54 000 Deferred tax asset <15 000> NB: Deferred tax asset: Limitation assess loss of R330 000 [Deferred tax asset unrecognised] Recognised assess loss R380 000
DEFERRED TAX [IAS 12]
18
19
Previously unrecognised [Limited to zero balance] Re-assessed at each year end Recognised to extent: Future profit are probable
ACCOUNTING TREATMENT
Re-instate unrecognised asset Re-instate at beginning of year [current years tax rate] Provide for current years differences
20
The tax rate remained 30%. At 31/12/X6 there was uncertainty about the future taxable income.
At 31/12X7 there was certainty that the company will earn taxable income in future years.
21
31/12/X6 560 000 730 000 -170 000 -51 000 31/12/X7 750 000 910 000 -160 000 -48 000 Provision for year 3 000 31/12/X7: DR: DEFERRED TAX 51 000 CR: TAX EXPENSE 51 000 [Recognise previously unrecognised asset] DR: TAX EXPENSE 3 000 DR: DEFERRED TAX 3 000 [Deferred tax provision for the year]
DEFERRED TAX [IAS 12]
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