1. Timing differences, Temporary differences and Permanent differences Timing differences, focus on profit and loss movements, and pertain to the difference between the taxable amount and the pre-tax accounting profit that originate in one reporting period and reverses in one or more subsequent periods…
Such differences only impact on the taxation computation of one period.
Deferral method is where the tax effects of current timing differences are deferred and allocated to future periods when the timing differences reverse. Since deferred tax balances in the balance sheet are not considered to represent rights to receive or obligations to pay money, they are not adjusted to reflect changes in the tax rate or the imposition of new taxes. Under the deferral method, the tax expense for a period comprises of provision for taxes payable and the tax effects of timing differences deferred to or from other periods. Liability Method is where the expected tax effects of current timing differences are determined and reported either as liabilities for taxes payable in the future or as assets representing advance payment of future taxes. Deferred tax balances are adjusted for changes in the tax rate or for new taxes imposed. The balances may also be adjusted for expected future changes in tax rates. Under the liability method, the tax expense for a period comprises of the provision for taxes payable, the amount of taxes expected to be payable or considered to be prepaid in respect of timing differences originating or reversing in the current period and the adjustments to deferred tax balances in the balance sheet necessary to reflect either a change in the tax rate or the imposition of new taxes.
3. Nil provision, partial provision and full provision
Nil provision is where no provisions are made for deferred tax whatever the circumstances. This is based on the principal that only the tax that is deemed to be payable in respect of a period should be accounted for in the financial statements. Full provision is where the tax effects of all timing differences are recognized as and when they arise. Although this method is arithmetically accurate it can lead to the building up of large meaningless provisions in the balance sheet. Partial provision lies between the two extremes stated above. Deferred tax should be accounted for in respect of the net amount by which it is probable that any payment of tax will be temporarily deferred by the operation of timing differenced, which will reverse in the foreseeable future without being replaced.
Discounting deferred tax assets and liabilities enables to reflect the time value of money. IAS 12 does not permit discounting due to the difficulty in ascertaining the timing of reversal of each temporary difference
B) Critically assess the current IAS 12 requirements for accounting for deferred tax
Deferred tax is an accounting term, meaning future tax liability or asset, resulting from temporary differences between book (accounting) value of assets and liabilities, and their tax value. This arises due to differences between accounting for shareholders and tax accounting. Deferred tax arises when the actual tax as a result of a particular transaction (tax payable or recoverable) arises in a different period from the period in which the transaction is included in the financial statements.
The provision for taxes payable is calculated in accordance with rules for determining taxable income established by taxation authorities. In many circumstances these rules differ from the accounting policies applied to determine accounting income. The effect of this ...
Cite this document
(“Deferred Taxation Essay Example | Topics and Well Written Essays - 1500 words”, n.d.)
Retrieved from https://studentshare.net/miscellaneous/302248-deferred-taxation
(Deferred Taxation Essay Example | Topics and Well Written Essays - 1500 Words)
“Deferred Taxation Essay Example | Topics and Well Written Essays - 1500 Words”, n.d. https://studentshare.net/miscellaneous/302248-deferred-taxation.
2008). This particular circumstance has led to occurrence and existence of gap between the profits stated for financial purposes and the amount of tax actually paid. There still exist no clear outline as to how extend this is an indicator of avoidance activity is actually tied up with the vexing question of what amounts to tax avoidance and the extent to which tax avoidance is undesirable and unacceptable in general (Wolfgang, et al.
The following discourse is on Australian taxation laws. The focus is a case study on Stephanie. Most of the countries fund their operations from revenues collected through taxation. This tax is imposed on various activities undertaken by the citizens of the state and among the category of this source of tax is the income tax.
The chief standard-setter is the Accounting Standards Board (ASB), which issues standards called Financial Reporting Standards (FRSs). The ASB is part of the Financial Reporting Council, an independent regulator funded by a levy on listed companies, and
So far taxes are concerned; the management’s choice of depreciation would depend upon the fact as to during which period of useful life of asset the management intend to pay higher taxes. Assuming the tax rate remains the same
Then it moves onto discuss the issues of the chargeable disposal, the exemptions and part disposals.
A company operating in a market has to undergo many processes e.g. the earning of revenue, the deduction of the costs, the payment of wages etc. The consideration of taxes
UK source income is generally subject to UK taxation no matter the citizenship nor the place of residence of the individual nor the place of registration of the company.
The tax year in the UK, which applies to income tax and other
If an asset’s value decreases, then, a capital loss is realized. In principle and under the income tax rules, capital gains are included in the tax base when they accrue. Capital gains will be taxed upon the disposal or realization of an
It is liability to the company since it has a negative implication on financial statement of the company. The amount of tax payable by companies is dependable on the size of the firm’s income revenue. To ascertain the impact of taxation on financial statement, this project
11 Pages(2750 words)Essay
GOT A TRICKY QUESTION? RECEIVE AN ANSWER FROM STUDENTS LIKE YOU!
Let us find you another Essay on topic Deferred Taxation for FREE!