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| International Accounting standard(IAS) |
IAS-12 (International Accounting Standard 12) is a standard issued by the International Accounting Standards Board (IASB) that provides guidance on income taxes. It outlines how to account for current and deferred tax liabilities and assets, aiming to ensure that companies recognize the appropriate tax expenses and obligations in their financial statements.
Key aspects of IAS 12 include:
1.Current Tax:
This is the amount of income tax payable (or receivable) for the current period, based on the taxable income for that period. It is calculated using the tax rates and tax laws that are enacted or substantively enacted at the end of the reporting period.2.Deferred Tax:
Deferred tax arises from temporary differences between the carrying amount of an asset or liability in the financial statements and its tax base (the amount used for tax purposes).
Deferred Tax Liabilities (DTLs):
These are amounts of income taxes that are expected to be paid in the future due to taxable temporary differences.
Deferred Tax Assets (DTAs):
These arise when there are deductible temporary differences, tax losses, or tax credits that can reduce future tax liabilities.
3.Recognition of Deferred Tax:
Deferred tax assets and liabilities are recognized for all temporary differences, except in specific cases like those arising from the initial recognition of goodwill or assets acquired in a business combination.
Deferred tax is also recognized for unused tax losses or credits when it is probable that taxable profits will be available in the future against which the tax benefits can be utilized.
4.Measurement of Deferred Tax:
Deferred tax assets and liabilities are measured using the tax rates expected to apply when the asset is realized or the liability is settled, based on tax laws that are enacted or substantively enacted by the reporting date.
5.Offsetting:
Deferred tax assets and liabilities can be offset (netted) only if they relate to the same tax authority, and the company has the legal right to offset them against each other.
6.Tax Expense (Income):
The tax expense recognized in the income statement includes both the current tax expense and the change in deferred tax. It reflects the company's total tax obligation for the period, including adjustments for previous periods.