acca p2 income tax.pdfVIP

SESSION 9 - TAXATION Syllabus Review: 1. Apply and discuss the recognition and measurement of deferred tax liabilities and deferred tax assets. 2. Determine the recognition of tax expense or income and its inclusion in the financial statements. 1. CURRENT TAXATION Current tax is the amount of income taxes payable (recoverable) in respect of the taxable profit (tax loss) for a period. • Accounting profit is profit or loss for a period before deducting tax expense (PBT). • Taxable profit (tax loss) is the profit (loss) for a period, determined in accordance with the rules established by the taxation authorities, upon which income taxes are payable (recoverable). Due to the different rules between accounting profit and taxable profit, in order to calculate the amounts which should be paid to tax authorities for a certain year, it is necessary to adjust accounting profit to taxable profit for these differences. Current Tax in PL: Estimated tax on taxable profits X Adjustments for last year tax Add: under-provision for tax charges in the previous year X Less: over-provision for tax charges in the previous year (X) X Current Tax in SOFP: Current tax for current and prior periods shall, to the extent unpaid, be recognised as a liability. If the amount already paid in respect of current and prior periods exceeds the amount due for those periods, the excess shall be recognised as an asset. 2. DEFERRED TAX BASIC PRINCIPLES It is possible for a company to report an accounting profit of say $100,000 and yet be required to pay no current tax. This is because of temporary differences, which distort the timi