Chapter 15 - Taxation

Abstract

This chapter focuses on the IAS 12 standard, which prescribes the accounting treatment for income taxes, for both current and future tax consequences. It includes all domestic and foreign taxes based on taxable profits, however it does not cover government grants. According to this standard, the current tax for the current and prior periods should be recognized immediately as a liability and if the amount paid exceeds the amount due, then the excess should be recognized as an asset. The benefit relating to a tax loss that can be carried back to recover current tax of a previous period should be recognized as an asset and at each balance sheet date, the company should reassess unrecognized deferred tax assets. A company should recognize a deferred tax asset only where it is probable that the temporary difference will reverse in the foreseeable future, and the taxable profit will be available against which the temporary difference can be utilized. Current tax liabilities and assets should be based on tax rates enacted by the balance sheet date and they should be measured at tax rates that are expected to apply to the period when the asset is realized or liability settled. Whenever different tax rates apply, average rates should be applied. The measurement of deferred tax liabilities and assets should also reflect the tax consequences that would follow from the manner in which the company expects, at the balance sheet date, to recover or settle the carrying amount of its assets and liabilities.