Income Statement Approach Deferred Tax

Liability giving rise to future tax consequences waheeda pty limited has a profit before tax of r200 000 in both 2015 and 2016.

Income statement approach deferred tax. A deferred income tax is a liability recorded on a balance sheet resulting from a difference in income recognition between tax laws and the company s accounting methods. Income received in advance balance at end of 2015 was r50 000 and at. In paper f7 deferred tax normally results in a liability being recognised within the statement of financial position. Deferred tax is accounted for in accordance with ias 12 income taxes.

Ias 12 defines a deferred tax liability as being the amount of income tax payable in future periods in respect of taxable temporary differences. In simple terms pre nz ifrs tax is calculated on the difference between accounting profit and taxable profit and accumulates in the statement of financial position as either a deferred tax asset or liability. A statement of cash flow is part of the annual financial statements that are presented by an entity along with the statement of financial position statement of comprehensive income and statement of changes in equity. In other words income statement approach assumes that all the incomes are accrued in the income statement.

It represents the net cash flow cash generated less cash spent of an entity during a specific period i e. 1 5 lakh which the company is accountable to settle in the following year when it realises the rest of the revenue thus creating a deferred tax. The calculation of deferred tax pre nz ifrs was often referred to as the income statement approach wong 2006. Deferred tax timing differences if an income or expense which creates a profit or loss is taxed in the same period that it appears in the income statement or equity such as share issue costs the tax charge for the year will reflect this and no further action is required.

Deferred tax example 1. No deferred tax is created on permanent differences. The difference in tax liability between the income statement and its tax report is rs.