The standard prescribes the accounting treatment for income taxes is AASB 112 AASB 112 is based on a balance sheet approach to account for income taxes and it covers: • the accounting treatment of current and deferred tax expenses; • recognition and measurement of current tax assets and liabilities; • recognition and measurement of deferred tax assets and liabilities; • the accounting treatment of the tax consequences of various transactions and events, including asset revaluations; • the accounting policies applicable for when an entity has tax losses; and • the disclosure requirements in relation to tax items.
The difference between accounting treatment and tax treatment 1.
* AASBs and the Corporations Act are key sources that determine the appropriate accounting treatment of transactions * AASBs and the Corporations Act are key sources that determine the appropriate accounting treatment of transactions 2. Accounting is on accrual basis while Tax is on principally cash basis. 3. Equations
* Accunting profit = Revenue – Expenses
* Taxable profit = Taxable Income (TI) – tax deductions (TD) Table in the text book
To calculate the tax balances at the end of the period, the following steps are recommended: Step 1 — Calculate the current tax liability and current tax expense. Step 2 — Recognise the current tax expense in the Statement of Financial Performance unless an amount is required to be recognised in equity. Step 3 — Determine the carrying amount and tax bases of assets and liabilities. Step 4 — Determine the temporary differences.
Step 5 — Calculate and recognise the deferred tax assets and deferred tax liabilities arising from temporary differences. Step 6 — Recognise the movement in deferred tax balances as deferred tax expense or revenue in the balance sheet.
Calculation of current tax liability
- acctg revenue not assessable for tax
+ acctg expenses not...