IAS 12 – Example (excl. deferred tax) – ACCA Financial Reporting (FR)
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Hi Chris,
In the Question, it states that for the later two years, we use a reducing balance basis at 20%. I get that for the second year the reducing balance is $500 as 20% of $2500 is $500. But why for the third year, did you write the reducing balance as $400? Isn’t 20% of 500, 100?
In the third year, it’s 20% of 2000 = 400.
Hello, Can you please explain what will be the tax payable in the balance sheet for all the years?
hi
to calculate the carrying value of asset, do we deduct the residual value from the cost as well? i mean Cv= cost-accumulated dep-impairment-residual value?
Just wondering why the standard is called income tax, when for companies it would be corporation tax? Also, why is the expense to P&L called income tax expense?
Why would company call it a Corporate tax instead of Income tax? Company itself and its users know that it’s a company, no need to specify that it is a Corporate Tax and not an Individual tax.
On the other hand, some users may be confused by Corporate tax and think that it may include some other taxes. So Income tax makes it clear.
Also accounting and tax worlds are different so terminology may also be different
sorry, I get it now, don’t bother to answer my question
in your example are depreciation and tax allowances causing permanent differences between accounting profit and tax profit ?
Brilliant explanation of a confusing topic – thank you!
Hi,
I am slightly confused on one thing. When we adjust the profits for tax allowances, i.e we added back the depreciation to take it to 3 million and worked out the capital allowances based on the 3 million, for the first year it gave us a 2.5m allowance. so 3m – 2.5m = £500,000. The tax is now calculated on this figure of 500,000 which was 100,000. What I don’t understand is why the 100,000 tax expense is taken off accounting profits of 2m? which is actually the after depreciation profit? should it not be taken of the profit which as adjusted for capital allowances i.e the 500,000?
Hi,
Accounting profits are the same as the profits before tax, and so by deducting the tax expense from this figure we are then calculating the profit for the year.
Thanks