IAS 12 – current tax/deferred tax

Hi,

I hope I can help you.

For calculating income tax and deferred tax for the income statements, first lay out (I name it my own little tax proforma):

Tax (SPorL):

Estimated provision for the year X
Previous year tax balance X
Deferred tax for the year X

Total = income tax expense (SPorL) X

Now, search through the question until you find the area on tax. The estimated provision should be given to you. Fill this figure onto the proforma above and not forgetting the easy mark, that is the SFP CL as Tax.

Next, look at your trial balance, if the balance is on debit, add the figure as positive integer onto the proforma. If the balance is a credit balance, add the figure as a negative integer.

Finally, the deferred tax. This can be a bit tricky as you will need to refer to the NCA if there is a need to include a gain on valuation to be taxed. I always count myself as lucky if the question says to ignore deferred tax on this part. I have so far practised on questions that either gave you the temporary difference directly, or an explicit increase or decrease of deferred tax.

The strategy is to determine if the deferred tax has increased or decreased. If temporary tax is given, multiply by the tax percentage and put that figure on SFP NCL as deferred tax. Then, use that amount to compare with the previous year deferred tax balance (from the trial balance and this always sit on the credit side). If the amount increases, it should be added to the proforma above and likewise, if it decreases it is deducted. If ever so unfortunate to have a gain on revaluation of PPE and question has explicitly ask you to account for it as a deferred tax, the amount increase or decrease on the deferred tax should be further deducted from this amount before being added/deducted to the proforma.

If we are lucky this December, an explicit amount of deferred tax is given as an increase or a decrease, just add or deduct from the proforma.

Total all three figures and transfer that amount to SPorL as income tax expense. Done!

Hi again,

I hope to understand your confusion better but I am guessing you might not have the idea of what are taxes/ deferred taxes and how they work. Either try google or if you have your F3 notes handy will help lots.

Anyway, to cut the pain short, I summarized as below:

SFP

NCL
Deferred tax (to record the balance carried forward)

CL
Tax ( to estimated amount that is usually should be given in the question)

For cash flow questions, you are given the SPorL and SPF. I have always been using only the Columnar method.

For calculating tax paid using Columnar method:

Balance b/f [deferred tax(NCL) + current tax(CL)] X
Tax expense (SPorL) X
Tax paid (bal. figure) X
Balance c/f [deferred tax (NCL) + current tax (CL) X

Hope that helps.