Ch 8: IAS 12 Income Taxes
1. Current Tax
1-1 Current Tax [O]
1-2 Q&A Fresh Company [O]
2. Deferred Tax
2-1 Deferred tax [R]
2-2 Q&A Kashif Limited [O]
2-3 Q&A Adeel Limited [O]
2-4 Q&A Rose Limited (ICAP Spring 2018) [O]
Query: Sir kindly confirm Kar dein ke 6th point mein jo aseet right to use ha wo hamari unearned liability mein classify hoo ga ya phir ager asset ha too Zara Bata dein is ki tax base zero kese ha
Response: Not unearned liability but its second impact would be on lease liability as shown in calculations.
Tax base of asset (if future benefits are taxable) = Future deductible amounts
ROU (it will generate income which will be taxed) = Zero as tax authorities do now allow depreciation of ROU asset
Query: sir tax rate change ho raha hi after year end (1-jan-2018) to is ka impact is year q aye ga(only diclouure is required)?
Response: The rate is changing with effect from 1 January 2018 (and not on 1 January 2018) and tax rate of next years are usually enacted at least one year before at the time of budget. IAS 12 (para 46 and 47) requires measurement based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.
2-5 Current and deferred tax charge [R]
Query: Sir yani tax ke impact se oci gain decrease hoo Raha ha iss example mein? Please clarify Kar dein
Response: In a way yes.
We can also say that:
1. gain on revaluation is recognised in OCI (e.g. Rs. 100)
2. tax expense arises due to above (as carrying amount has increased but tax base hasn't) (e.g. Rs. 100 x 30% = Rs. 30)
3. tax expense of this should be charged to OCI as well (due to matching concept). Net amount in OCI will be Rs. 70 (i.e. Rs. 100 - 30).
3. Presentation and Disclosure
3-1 Presentation and Disclosure [R]
4. Comprehensive Examples
4-1 Q&A Floor and Tiles Limited (ICAP Spring 2016) [R]
4-2 Q&A Orange Limited (ICAP Autumn 2018) [R]
4-3 Q&A Triangle Limited (ICAP Spring 2019) [R]
Query: Sir insurance ko tax Walay payment basis pe maan rhy hain or payment b to ho gai hai (prepaid) to deferred tax 2018 mai CV 0 or TB 5 nhi honi chahiay?
Response: Seems like opposite:
Tax law allows expense on payment basis so they considered it as expense not asset (tax base of asset is NIL)
Accounting considered them as prepaid i.e. asset (not expense) and it means carrying amount is 5.
Query: Sir I've a question related to deferred tax at CAF. In one question i e mabroom limited , change in tax rate is accounted for by taking impact on closing DTL , leken triangle limited mein opening DTL pe effect of change in tax rate liya .. why so , plssss bta den kindly kindly kindly 😢❤️
Response: Items calculated using the same rate as applicable rate need not be reconciled. Items with different rates are to be reconciled.
In Triangle Limited: Applicable rate is 35%. Closing DT liability is also at 35%, therefore, reconciliation NOT required. Opening DT liability is at 30%, therefore, reconciliation IS required.
In Mabroom Limited: Applicable rate is 35%. Closing DT liability is at 30%, therefore, reconciliation IS required. Opening DT liability is already at 35%, therefore, reconciliation is NOT required.
4-4 Q&A Dua Limited (ICAP Autumn 2020) [R]
4-5 Q&A Lux Limited (ICAP Spring 2021) [I]
Query: Sir fifth adjustment mein extra donations ko reconciliation mein kyu le gae hain
Response: because in accounting it is expense one time (100%) in tax it is expense at double amount (200%) and this difference is not temporary (because it will not reverse ever), so it has to be reconciled (say, as a permanent difference).
4-6 Q&A Mabroom Limited (ICAP Autumn 2021) [I]
Query: Sir I've a question related to deferred tax at CAF. In one question i e mabroom limited , change in tax rate is accounted for by taking impact on closing DTL , leken triangle limited mein opening DTL pe effect of change in tax rate liya .. why so , plssss bta den kindly kindly kindly 😢❤️
Response: Items calculated using the same rate as applicable rate need not be reconciled. Items with different rates are to be reconciled.
In Triangle Limited: Applicable rate is 35%. Closing DT liability is also at 35%, therefore, reconciliation NOT required. Opening DT liability is at 30%, therefore, reconciliation IS required.
In Mabroom Limited: Applicable rate is 35%. Closing DT liability is at 30%, therefore, reconciliation IS required. Opening DT liability is already at 35%, therefore, reconciliation is NOT required.
Query: Sir last point mai jo tax rate change ho rha hai 35% SE 30% . Wo 2021 SE change ho rha hai. But solution mai 2020 mai 30% pe calculate kiya huwa hai
Response: Deferred tax relates to future that's why its calculation is based on future rates enacted by year end (as in this question December 20, 2020 that is before year end). You will notice that current tax and reconciliation is still based on 35%.
5. Objective Based Q&A
5-1 MCQs [1 to 15] [R]
5-2 MCQs [16 to 23] [R]
6. Additional Practice Q&A
6-1 Q&A Surprise Limited (ICAP Spring 2022) [I]
Query: Can you please explain the point 3 in question, i mean can you explain this point in easy words what is it actually saying?
Response: Let's assume interest receipt is Rs. 20 million, then interest income would be Rs. 32 million (i.e. excess of Rs. 12 million). So, we included income of Rs. 32 million in accounting profit but tax authorities will not tax the extra Rs. 12 million because they tax on receipt basis.
Let's assume commission receipt is Rs. 50 million, then commission income would be Rs. 35 million (i.e. lower by Rs. 15 million). So, we included income of Rs. 15 million (remaining Rs. 35 in unearned) in accounting profit but tax authorities will also tax extra Rs. 35 million because they tax on receipt basis.
Query: Sir, cash donation jo allowed as expense ha (40% of Rs. 5m = Rs. 2m), is se reconciliation out q horhi ha? Jb keh to tax authorities ne Rs. 2m ko allowed as deduction kiya huwa ha? Kindly elaborate kardein.
Response: Allowed is 60%............Rs. 5m x 60% = Rs. 3 million (no adjustment needed). Not allowed is 40%.......Rs. 5m x 40% = Rs. 2 million (adjustment needed for this permanent difference which needs to be reconciled.)
6-2 Q&A Prism Limited (ICAP Autumn 2022) [I]
Query: Sir foreign exchange tax authorities Gain pr less kr rhi r loss pr add ye Kuen? & Last point pr C.T me 9 AA rha is liye k D.T me 30-39=(9) income AA Rahi to C.T me 9 add kia bcz income thi??
Response: In accounting we credit "profit or loss" for exchange gain (tax authorities wouldn't allow that, so add back". In tax, crediting the PPE would be treatment for exchange gain.
As per question information (vi), taxable temporary differences have decreased by 9 (from 39 to 30) and it means in accounting more expense has been recognised than in tax which should be added back now.