4 Definitions
Accounting profit (‘net
profit before tax’)
Accounting profit is net profit for
a period, before deducting tax.
Taxable profit (or tax
loss)
Taxable profit (tax loss) is the
profit (loss) for a period, calculated according to the rules of the tax
authorities, upon which income taxes are payable (recoverable).
Tax expense (or tax
income)
Tax expense (tax income) is the
total amount included in the net profit (or loss) for the period, in respect of
current tax, and deferred tax.
Tax expense (tax income) comprises
both current tax expense (income) and deferred tax expense (income).
Current tax
Current tax is the total of income
taxes payable (recoverable) in respect of the taxable profit (loss) for a
period.
Deferred tax liabilities
Deferred tax liabilities are the
amounts of taxes payable, in future periods, in respect of taxable temporary
differences.
Deferred tax assets
Deferred tax assets are the taxes
recoverable, in future periods, in respect of:
(1) deductible
temporary differences (accruals of tax receivable);
(2) unused
tax losses; and
(3) unused
tax credits.
Temporary differences
Temporary differences are
differences between the carrying amount of an asset (or liability) in the
balance sheet, and its tax base.
Temporary differences may be
either:
(1) taxable temporary differences that will
increase taxable profit of future periods, when the carrying amount of the
asset (or liability), is liquidated; or
(2) deductible temporary differences that
will reduce taxable profit (tax loss) of future periods, when the carrying
amount of the asset (or liability) is liquidated.
Tax base
The tax base of an asset (or
liability) is the value of that asset (or liability), for tax purposes. This may be the written down value of a fixed
asset for tax basis. Others are described below.
The tax base is the amount that will
be deductible for tax purposes over the life of the asset.
|
EXAMPLE
- Determine the tax base of assets and liabilities
Issue
An asset’s tax base is the amount that
will be deductible for tax purposes against any taxable economic benefits
that will flow to an entity when it recovers the asset’s carrying amount. If
those economic benefits will not be taxable, the asset’s tax base is equal to
its carrying amount.
How should management calculate the tax
base of a dividend receivable balance?
Background
Entity G’s management has recognised, in
G’s single-entity financial statements, a dividend receivable of 100,000 from
a wholly-owned subsidiary. The
dividend is not taxable.
Solution
Management should calculate the tax base
of the dividend receivable as follows:
|
No comments:
Post a Comment