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1、Chapter 6 Accounting for company income tax Prepared by Jenny James,Learning objectives,Explain the benefit of having information about current and deferred tax in the financial statements Describe how income tax is included in the financial statements Explain the general principles of current and d
2、eferred tax set out in AASB 112 Explain how taxable profit differs from accounting profit Prepare a current tax worksheet reconciling accounting profit to taxable profit and record the journal entries for current tax Prepare a deferred tax worksheet to determine the differences between the accountin
3、g and tax values for assets and liabilities and use the worksheet to record the entries for deferred tax,Learning objectives,Determine the tax bases of various assets and liabilities included in the statement of financial position Calculate the taxable and deductible temporary differences of various
4、 assets and liabilities and identify items that are excluded from the calculation of deferred tax liabilities and assets Describe the criteria for the recognition of deferred tax liabilities and assets and how these balances may reverse over time Describe the other disclosures relating to income tax
5、 in the financial statements Explain some of the additional issues that arise in accounting for income tax,The benefit of information on current and deferred tax,The recognition of current tax and deferred tax provides more complete or relevant information for economic decision making than current t
6、ax alone Current tax = income tax payable for current period Deferred tax = future tax consequences Recognising deferred tax as required by AASB 112 accounts for the future tax consequences for the assets and liabilities shown in the statement of financial position at the end of the reporting period
7、,Income tax in the financial statements,Statement of financial position Disclose current tax and deferred tax balances Deferred tax balances disclosed in the non-current section of assets and liabilities Statement of profit or loss and comprehensive income Income tax expense (includes current and de
8、ferred tax) Current/deferred tax recognised directly against equity Must be separately disclosed in statement of profit or loss or in the notes E.g. Deferred tax on the revaluation of land,Accounting for income taxes general principles,AASB 112 requires companies to account for the current and futur
9、e tax consequences of: Current transactions and events The recovery and settlement of assets and liabilities Current tax consequences = current tax liability/asset Future tax consequences = deferred tax liability/asset Income tax expense for period is comprised of: Current tax liability Movement in
10、deferred tax liability and deferred tax asset Movement in deferred tax liability/asset included in other comprehensive income for period,Accounting income vs tax treatments,AASBs and the Corporations Act are key sources that determine the appropriate accounting treatment of transactions,The Income T
11、ax Assessment Act determines the tax treatment of transactions,Some exceptions to this,Accounting profit does not equal taxable profit Difference caused by different “rules” used for accounting vs tax,Accounting income vs tax treatments,Insurance, rent, interest, royalties etc paid in advance,Provis
12、ions (e.g . for warranties) are treated in the same way as employee benefits,Accounting income vs tax treatments,Common for assets to be depreciated over a shorter life for tax purposes than for accounting purposes,Subject to conditions e.g. Reduced by exempt income,Taxable profit,Company income tax
13、 obligations are determined by its taxable profit calculated based on IT legislation Differences between accounting profit and taxable profit are due to: Accrual items; valuation adjustments; non-deductible items and tax incentives Tax treatment of items follows the cash flow Accounting treatment is
14、 based on accounting standards and principles of accrual accounting Results in assets and liabilities having carrying amounts for accounting purposes that differ to notional values for IT,Payment of income tax,Company income tax is paid under the PAYG (pay as you go) system in quarterly instalments
15、Companies must lodge quarterly business activity statements (BAS) and pay tax calculated as: Instalment income instalment rate (supplied annually by the taxation department) Current tax liability represents the last quarterly payment and any adjustments necessary to reflect the fact that annual taxa
16、ble income may differ from the sum of the quarterly returns,Current tax: reconciliation approach,Examples of reconciling items are: Interest revenue not received Fines and penalties expense Unearned revenue for work not yet performed Development costs paid recognised as an asset,Current tax liability example,The ATO allows a depreciation rate of 25% straight-line on cost to be used Allan Ltd applies a straight-line rate of 10% on cost in its accounting records No employee has been paid lon
