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Cfas - Pas 12

PAS 12 prescribes the accounting for income tax. It addresses the differences between income tax expense reported in financial statements and the actual amount of income taxes paid, which can differ due to varying treatments under accounting and tax standards. These differences are classified as either permanent differences that do not reverse over time, or temporary differences that give rise to deferred tax assets or liabilities and do reverse in future periods. Income tax expense consists of current tax and deferred tax calculated based on accounting profit compared to taxable profit.

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144 views

Cfas - Pas 12

PAS 12 prescribes the accounting for income tax. It addresses the differences between income tax expense reported in financial statements and the actual amount of income taxes paid, which can differ due to varying treatments under accounting and tax standards. These differences are classified as either permanent differences that do not reverse over time, or temporary differences that give rise to deferred tax assets or liabilities and do reverse in future periods. Income tax expense consists of current tax and deferred tax calculated based on accounting profit compared to taxable profit.

Uploaded by

Gio Burburan
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Income Tax- notes

PAS 12 prescribes the accounting for INCOME TAX

Purposes of pas 12 INCOME TAX – refer to taxes that are based on taxable profits.

 Income Tax expense – reported in the statement of comprehensive income may be different
from the amount of income tax required to be paid to Bureau of Internal Revenue (BIR).
 The Income tax expense in the statement of comprehensive income is computed using PFRS.
 The Current tax expense in the income tax return (ITR) is computed using Philippines tax laws.
 The PFRSs and Tax laws have different accounting treatments for some economic activities.
 Some items are appropriately recognized as income (expense) under financial reporting but are
either (a) Non-taxable ( non-deductible) or (b) taxable (deductible) only at some other periods
under the Philippines tax laws. The varying treatment result to permanent and temporary
differences. PAS 12 addresses the accounting, presentation and reconciliation of these
differences.
 Accounting profit – profit or loss for a period before deducting tax expense
 Taxable profit (tax loss) – profit (loss) for a period, determined in accordance with the result
established by the taxation authorities, upon which income taxes are payable (recoverable)
 Tax expense or income tax expense (tax income) – is the total amount included in the
determination of profit or loss for the period. It “comprises current tax expense (current tax
income) and deferred tax expense (deferred tax income).”
 Current tax or current tax expense – the amount of income taxes payable (recoverable) in
respect of the taxable profit (tax loss) for a period.
 Deferred tax expense (income or benefit ) – is the sum of the net changes in deferred tax assets
and deferred tax liabilities during the period.
- If the increase in deferred tax liability exceeds the increase in deferred tax asset, the
difference is deferred tax expense.
- If the increase in deferred tax asset exceeds the increase in deferred tax liability, the
difference is deferred tax income or benefit.
 INCOME TAX EXPENSE = CURRENT TAX EXPENSE + DEFERRED TAX EXPENSE / - DEFERRED TAX
BENEFIT.
 Permanent differences arise when income and expenses enter in the computation of either
accounting profit or taxable profit but not both.
- Permanent differences usually arise from non-taxable and non-deductible expenses and
those that have already been subjected to final taxes. In other words, these are items
included from the income tax return.
- Do not have future tax consequences, and hence do not give rise to deferred tax assets and
liabilities
 Temporary differences – differences between the carrying amount of an asset or liability in the
statement of financial position and its tax base. Temporary are either:
- Taxable temporary differences – those that result to future taxable amount when the
carrying amount of the asset liability is recovered or settled (give arise to deferred
liabilities)
- Deductible temporary differences – those that result to future deductible amounts when
the carrying amount of the asset or liability is recovered or settled. settled (give arise to
deferred asset)
- Have future tax consequences, and hence give rise to deferred tax assets and liabilities.
- Timing differences – arise when income and expenses are recognized for financial reporting
purposes in one period but are recognized for taxation purposes in another period ( or vice-
versa). They called it TD because only the timing or period of their recognition differs
between financial reporting and taxation. They are TD because their effect reverses in one
or more subsequent periods.

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