Other measurement points PROVISIONS AND CONTINGENCIES
6.1 Carrying amount versus tax base
An entity should determine an asset’s or liability’s carrying amount in its statement of financial position and its value for tax purposes, i.e. its tax base. Where there is a difference between the two amounts the entity may need to recognise a deferred tax asset or liability. The tax base of an asset is the amount that will be deductible for tax purposes against future profits generated by the asset. In simple terms the asset’s tax base is the amount of the asset in the current period for tax purposes. Illustration 2 An entity has an asset in its statement of financial position representing interest receivable of CU500. Although the interest will not be received until after the end of the reporting period, it has been earned in the current period and therefore has been recorded as income. The carrying amount of the asset at the end of the reporting period date is therefore CU500. The interest will be chargeable to tax when the cash is received, i.e. in the following period. The interest asset has no value for tax purposes in the current period, so its tax base is nil. The tax base of a liability is its carrying amount less any amount that will be deductible for tax purposes in future periods. Illustration 3 An entity has recognised a current liability for expenses that it has incurred but not yet paid at the end of its reporting period of CU1,000. The expenses will be fully allowable for tax purposes when they are paid in the following period. The carrying amount of the liability at the end of the reporting period is therefore CU1,000. The tax base is nil, being the carrying amount of CU1,000 less the amount that will be deductible for tax purposes in future periods i.e. CU1,000.6.2 Calculate the temporary difference
Temporary differences are differences between the carrying amount of an asset or liability in the statement of financial position and its tax base. Temporary differences may be either: [IAS 12.5] a taxable temporary differences, which result in taxable amounts arising in future accounting periods, as the carrying amount of the asset or liability is recovered or settled. Chapter 15 – Taxation Page 189 This is where the carrying amount of an asset liability for accounting purposes is greater less than its tax base; or b deductible temporary differences, which result in amounts that are deductible in future periods as the carrying amount of the asset or liability is recovered or settled. This is where the carrying amount of an asset liability for accounting purposes is less greater than its tax base. Illustration 4 The temporary differences in illustrations 2 and 3 are: Illustration 2: Carrying amount of the interest receivable is CU500 less its tax base of nil – temporary difference is CU500. Illustration 3: Carrying amount of the liability is CU1,000 less its tax base of nil – temporary difference is CU1,000. The temporary differences in Illustration 2 is a taxable temporary difference and in Illustration 3 is a deductible temporary difference.6.3 Determining deferred tax
Deferred tax liabilities represent income taxes payable in future periods in respect of taxable temporary differences. A taxable temporary difference therefore creates a deferred tax liability. [IAS 12.5] Deferred tax assets are “amounts of income taxes recoverable in future periods in respect of deductible temporary differences”. [IAS 12.5] Deferred tax assets may also arise as a result of tax losses and tax credits that can be used to reduce an entity’s future tax liability. An entity should only recognise a deferred tax asset in respect of tax losses and recoverables where it is probable that it will gain benefit from them, i.e. taxable profits will be made in future periods that they can be offset against. A deductible temporary difference therefore creates a potential deferred tax asset. [IAS 12.34] A deferred tax asset or liability is calculated by multiplying the temporary difference by the relevant tax rate. The tax rate to be used in the calculation for determining a deferred tax asset or liability is the rate that is expected to apply when the asset is realised, or the liability is settled. These rates should be based on tax laws that have already been enacted or substantively enacted by the end of the reporting period. [IAS 12.47] Illustration 5 An entity operates in Muldovia, and enters into a long-term contract to build a motorway in that country. During the year ended 31 December 2007, the entity recognises CU4million of income on this contract in profit or loss for the period, although it does not expect to receive the related cash until the year ending 31 December 2009. Under the tax rules of Muldovia tax is charged on a cash receipts basis. The tax rate for businesses in Muldovia was 30 in the year to 31 December 2007, but the government has voted in favour of a reduction to 29 for 2008. There is currently a rumour that the rate will drop to 28 in 2009, but no announcement has been made.Parts
» The International Accounting Standards Committee IASC
» The International Organisation of Securities Commissions IOSCO
» The Financial Accounting Standards Board FASB
» The Committee of European Securities Regulators CESR
» The IASB FINANCIAL REPORTING CONTEXT
» The Standards Advisory Council SAC
» The International Financial Reporting Interpretations Committee IFRIC
» The standard-setting process THE IFRS FRAMEWORK
» Preface to International Financial Reporting Standards
» Definition THE IFRS FRAMEWORK
» Financial statements THE IFRS FRAMEWORK
» Economic decisions Users and their information needs
» Accountability of management THE IFRS FRAMEWORK
» Financial position, performance and changes in financial position
» Underlying assumptions THE IFRS FRAMEWORK
» Understandability Qualitative characteristics of financial statements
» Relevance Qualitative characteristics of financial statements
» Reliability Qualitative characteristics of financial statements
» Definitions of elements Elements of financial statements
» Recognition of elements in financial statements Measurement in financial statements
» The statement of financial position
» The statement of comprehensive income
» Currentnon-current distinction PRESENTATION OF FINANCIAL STATEMENTS
» Notes PRESENTATION OF FINANCIAL STATEMENTS
» Fair presentation and compliance with IFRS
» Comparative information Other considerations
» Additional disclosures Other considerations
» ACCOUNTING POLICIES IFRSs) Learning Materials
» Servicing fees included in the price of the product
» Cost of inventories INVENTORIES
» Cost formulae Net realisable value NRV
» Initial recognition and elements of cost
» Self-constructed assets PROPERTY, PLANT AND EQUIPMENT
» Ceasing recognition of costs
» Subsequent expenditure PROPERTY, PLANT AND EQUIPMENT
» Depreciation and revalued assets
» Which costs should be capitalised?
» When should capitalisation of borrowing costs commence?
» Suspension of capitalisation BORROWING COSTS
» Ceasing capitalisation BORROWING COSTS
» Non-monetary government grants GOVERNMENT GRANTS
» Repayment of government grants
» No specific relation to operating activities
» Proposed revision of standard
» Changes of plan NON-CURRENT ASSETS HELD FOR SALE
» Nature of investment properties Scope
» Initial recognition INVESTMENT PROPERTY
» Measurement after recognition INVESTMENT PROPERTY
» Applicable to both the fair value model and the cost model
» The cost model INVESTMENT PROPERTY
» Separately acquired intangible assets
» Exchanges of assets INTANGIBLES
» Intangible assets acquired as part of a business combination
» The research phase INTANGIBLES
» The development phase INTANGIBLES
» The cost of internally generated intangible assets
» Stage 1 – Indicators of impairment
» Stage 2 – Measuring recoverable amount
» Stage 3 – Recognising an impairment loss
» Future operating losses Provisions
» Contingent liabilities and contingent assets
» Best estimate PROVISIONS AND CONTINGENCIES
» Present value PROVISIONS AND CONTINGENCIES
» Other measurement points PROVISIONS AND CONTINGENCIES
» Reimbursements PROVISIONS AND CONTINGENCIES
» Decommissioning, restoration and environmental funds
» Waste management costs PROVISIONS AND CONTINGENCIES
» Carrying amount versus tax base Calculate the temporary difference
» Determining deferred tax TAXATION
» Revaluations Recognition criteria: further issues
» The expected manner of recovery of an asset
» Annual review Recognition criteria: further issues
» Discounting Recognition criteria: further issues
» Temporary differences and investments
» Other related disclosures TAXATION
» Risks and rewards Situations indicating the existence of a finance lease
» Initial recognition Finance lease recognition
» Depreciation Finance charge Finance lease recognition
» Actuarial method Methods of allocating finance charges
» Disclosures for finance leases
» Operating lease incentives Accounting treatment of operating leases
» Disclosures for operating leases
» Disclosure by a lessor for finance lease arrangements
» Disclosure by a lessor for operating lease arrangements
» Operating lease incentives Operating leases
» An overview All short-term benefits
» Short-term compensated absences Profit-sharing and bonus plans
» Recognition and measurement Disclosure
» The discount rate Movements during the period
» Variations in actuarial assumptions
» Past service costs Sundry considerations
» Curtailments and settlements Sundry considerations
» Minimum funding requirements and the limit on a defined benefit asset
» Disclosure and presentation of defined benefit plans
» Share-based payment transactions – cash-settled or equity-settled
» Group and treasury share transactions
» Objectives, scope and definitions of IFRS 2 Disclosure requirements
» EVENTS AFTER THE REPORTING PERIOD
» The functional currency FOREIGN EXCHANGE
» The presentation currency FOREIGN EXCHANGE
» Monetary and non-monetary items
» Summary of the approach of IAS 21
» Initial recognition FOREIGN EXCHANGE
» Reporting at the ends of subsequent reporting periods
» Transactions settled within the period
» Transaction balance is outstanding at the end of the reporting period
» Net Investment in a Foreign Operation
» Change in Functional Currency
» Translation of a foreign operation
» Disposal of a foreign operation
» Settlement options FOREIGN EXCHANGE
» Compound financial instruments FOREIGN EXCHANGE
» Financial assetliability at fair value through profit or loss
» Held-to-maturity investments Loans and receivables
» Available-for-sale financial assets Financial assets
» IFRIC 2 Members’ shares in co-operative entities and similar instruments
» Derecognition in its entirety Continuing involvement after a transfer
» Financial liabilities FOREIGN EXCHANGE
» Qualifying for hedge accounting
» Fair value hedge Cash flow hedge
» Hedge of a net investment in a foreign operation
» Objectives and Scope of IFRS 7
» Fair value Other disclosures
» Statement of comprehensive income Nature and extent of risks
» Objective and scope What is cash?
» The direct method FOREIGN EXCHANGE
» Indirect method FOREIGN EXCHANGE
» Non-cash transactions FOREIGN EXCHANGE
» Additional disclosures FOREIGN EXCHANGE
» Identifying segments FOREIGN EXCHANGE
» Reportable segments FOREIGN EXCHANGE
» Reporting formats FOREIGN EXCHANGE
» Discontinued operations Disclosure Prior periods
» Contents Form FOREIGN EXCHANGE
» Selected explanatory notes FOREIGN EXCHANGE
» Impairment in the interim period
» Calculating earnings FOREIGN EXCHANGE
» Calculating the weighted average number of ordinary shares
» Calculation of earnings Calculation of the weighted average number of shares
» Related parties FOREIGN EXCHANGE
» Contract revenue FOREIGN EXCHANGE
» Contract costs FOREIGN EXCHANGE
» Stage of completion FOREIGN EXCHANGE
» Reliable measurement FOREIGN EXCHANGE
» Loss making contracts FOREIGN EXCHANGE
» Key Concepts FOREIGN EXCHANGE
» Valuation of assets Disclosure
» What is an insurance contract?
» Scope of consolidated financial statements
» Special purpose entities FOREIGN EXCHANGE
» Basic approach FOREIGN EXCHANGE
» Reporting dates and consistent accounting policies
» The statement of financial position The statement of comprehensive income
» Gain or loss on net monetary position
» Introduction Statement of cash flows
» Initial application of IAS 29
» Identifying a business combination
» Acquisition method of accounting
» General principle FOREIGN EXCHANGE
» Specific issues FOREIGN EXCHANGE
» A business combination achieved in stages
» Subsequent accounting for contingent consideration
» Classifying and measuring the identifiable net assets acquired
» Initial recognition and subsequent adjustments
» Subsequent measurement FOREIGN EXCHANGE
» Recognition and measurement of goodwill
» Gain on bargain purchase Adjustments to provisional values
» Impairment losses FOREIGN EXCHANGE
» Jointly controlled operations FOREIGN EXCHANGE
» Proportionate consolidation Equity method
» Jointly controlled assets Investors separate financial statements
» Transactions between a venturer and a joint venture
» Operators of joint ventures Investors of a joint venture
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