程序代写 AASB112:IncomeTaxes

Financial Accounting A
Topic 8: Accounting for income taxes
These notes only summarise key points Textbook reading is essential
The University of 1

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Income Taxes
Text Readings:
– H&PChapters:
– Ch 9 pp 273-285, 292-300, 306-309
Other Readings:
– AASB112:IncomeTaxes
The University of 2

Learning objectives
1. Identify the major differences between tax and accounting treatment (LO 9.1)
2. Identify and explain the tax-payable method of accounting for income tax (LO 9.2)
3. Understand the perceived benefits and problems with the tax-payable method (LO 9.3)
4. Identify and explain the statement of financial position approach to tax allocation (LO 9.4)
5. Understand the perceived benefits and problems with the statement of financial position approach to tax allocation (LO 9.5)
6. Understand and apply the requirements of AASB 112 (LO 9.6)
The University of 3
Objective 1
Identify the major differences between tax and accounting treatments
The University of 4

Differences between tax and accounting treatments
Accounting Profit
= revenue less expenses
Based on accrual accounting and requirements of Accounting Standards
Taxable Income
= assessable income – allowable deductions
Based on requirements of Tax Law
Accounting Profit ≠Taxable Income
Taxable income usually differs from accounting profit before tax.
– Assessable income is similar (but not identical) to accounting income
– Allowable deductions are similar (but not identical) to accounting expenses
The University of 5
Current differences between tax and accounting treatments
Many expenses payable:
– Accounting treatment: recognised as an expense when accrued
– Tax treatment: recognised as a tax deduction when paid
For some revenue received in advance:
– Accounting treatment: recognised as revenue when earned
– Tax treatment: typically assessed for tax when received
The University of 6

Examples of current differences between tax and accounting treatments
Property, plant and equipment:
– Accounting treatment: depreciation is allocated over the estimated economic life of the asset
– Tax treatment: depreciation recognised as a tax deduction in the schedule of depreciation rates issued by the ATO
Doubtful debts:
– Accounting treatment: recognised as an expense when identified as doubtful
– Tax treatment: treated as a tax deduction when the receivables are written off as bad
The University of 7
Refer Table 9.1 H&P page 274
Table 9.1 H&P page 274
The University of 8

Objective 2
Identify and explain the tax-payable method of accounting for income tax
The University of 9
Alternative ways of accounting for company income tax
Income tax payable is:
– The amount that must be paid to the government
– Calculated by applying the company income tax rate to taxable income
Income tax expense is:
– The amount of income tax shown as an expense on the statement of comprehensive income
– Not necessarily the same as income tax payable
The University of 10

Alternative ways of accounting for company income tax
1. Tax-payable method:
– A process in which both tax expense and tax payable are measured by reference to taxable income.
2. Tax-allocation method using the statement of financial position approach:
– A process in which the current income tax expense and current tax liability are measured by reference to the taxable income. Differences between the carrying amount of assets and liabilities for accounting purposes and the tax base for tax purposes require the recognition of a deferred tax asset and/or a deferred tax liability.
The University of 11
Example 9.1 H&P page 276
Accounting profit
Profit before depreciation
Depreciation expense
Profit before tax
Taxable income
Taxable income before depreciation
Depreciation allowance
Taxable income
Current tax liability (30%)
The University of 12

Example 9.1 H&P page 276
Assumes tax expense in a period is the tax payable to the government (Income Tax Expense = Income tax payable)
Taxable Income
Taxable income before depreciation
Depreciation allowance
Taxable Income
Current tax liability (30%)
Year 1 journal entry
Dr Income tax expense
Cr Income tax payable The University of Sydney
Objective 3
Understand the perceived benefits and problems with the tax-payable method
The University of 14

Benefits and problems of tax-payable method
– Simple to apply
– Reasonable to assume that tax expense for a period is the tax that must be paid for the period
Criticisms:
– It was believed it resulted in misleading financial statements
– Changes in profit after tax may not be caused by changes in performance but by vagaries of the income tax legislation
The University of 15
Objective 4
Identify and explain the statement of financial position approach to tax allocation
The University of 16

Statement of financial position approach
Introduces the idea of a tax base of an asset or liability
– The amount at which an asset (or liability) would be shown in a statement of financial position derived from accounts prepared for tax purposes
The University of 17
Statement of financial position approach
A process in which:
– the current income tax expense and current tax liability are measured by reference to the taxable income
– the carrying amount of assets and liabilities are compared with the tax base for those assets and liabilities
– the outcome leads to the recognition of a deferred tax asset and/or a deferred tax liability
Income tax expense for a period has two components:
– the current component
– the deferred component
The University of 18

Statement of financial position approach
In Example 9.1, had a depreciable asset costing $100 000 with a zero residual value:
– For accounting purposes:
• The asset was depreciated over four years on a straight-line basis • Depreciation expense in year 1 – $25 000
– For taxation purposes:
• The asset was depreciated over four years on a reducing-balance
• Deprecation expense in year 1 – $40 000
The University of 19
Statement of financial position approach
– Accounting depreciation is added back to profit before tax
– Allowable tax deprecation is deducted to get taxable income
Year 1 journal entry
Dr Current income tax expense
Cr Current tax payable The University of Sydney

Statement of financial position approach
Referring to page 278, at the end of the first year
The Carrying Amount of the asset in the accounting records
Cost 100 000 Less accumulated dep’n 25 000 75 000
The Tax Base of the asset
Cost 100 000 Less accumulated dep’n 40 000 60 000
The amount at which the asset would be shown in the statement of financial position if it was prepared for tax
The University of 21
Statement of financial position approach
Temporary differences:
– In year 1, the depreciation expense recognised for accounting purposes is $15 000 less than the amount claimed for tax ($25 000 vs $40 000).
– As a result, the CA of asset > Tax base by $15 000 ($75 000 – $60 000).
– This difference between the carrying amount and tax base of the asset is
defined as a temporary difference.
– The difference is temporary because it will reverse in future periods.
– See the differences between ‘Income tax expense’ and ‘Income tax payable’ over the 4 year periods in Example 9.1 p278.
– The use of reducing-balance depreciation for tax purposes means that less tax is paid now but more will be paid later.
The University of 22

Statement of financial position approach
Deferred tax liabilities (DTLs) and deferred tax assets (DTAs):
– Arise because of temporary differences between the carrying amount and tax base of an asset or liability
– They are reversed from the accounts as the temporary differences reverse
– DTL: income tax payable in future periods from taxable temporary differences
– DTA: income tax recoverable in future periods from deductible temporary differences
The University of 23
Statement of financial position approach
– Temporary differences may be either:
Temporary Difference
Deductible Temporary Difference
Taxable Temporary Difference
Deferred Tax Asset
Deferred Tax Liability
The University of 24

Statement of financial position approach
Assets: DTL = Carrying amount > Tax base DTA = Tax base > Carrying amount
Liabilities: DTA = Carrying amount > Tax base DTL = Tax base > Carrying amount
General journal entries to record DTA/DTL: Dr Deferred tax asset
Cr Deferred income tax expense Dr Deferred income tax expense
Cr Deferred tax liability The University of 25
Statement of financial position approach
General journal entries for Year 1 (Example 9.1):
Current income tax expense = taxable income $160 000 x 30% Dr Current income tax expense 48 000
Cr Income tax payable 48 000
Deferred tax liability = taxable temporary difference $15 000 x 30%
Dr Deferred income tax expense Cr Deferred tax liability
The University of Sydney

Statement of financial position approach
The “income tax expense” reported in the statement of comprehensive income has two components:
– The amount of income tax payable (current income tax expense paid to ATO); plus
– The amount necessary to restate the deferred tax liability or asset to its current amount (deferred income tax expense)
The University of 27
Statement of financial position approach
(Example 9.1 continued)
The income tax expense of Year 1 reported in the statement of comprehensive income is:
The University of 28
Current income tax expense: Deferred income tax expense:
Income tax expense:
48 000 4 500 ———– 52 500

Statement of financial position approach
Reconstructing ledger accounts to identify tax items
The University of 29
Statement of financial position approach
Permanent differences:
– In addition to the temporary differences, there are also permanent differences, which are assets or liabilities that are recognised in either an accounting statement of financial position or a tax statement of financial position but are never recognised in the other
– Examples
• Tax exempt income
• Non allowable expenses
• Allowable tax deductions that are not recognised for accounting purposes
– They do not result in DTAs or DTLs The University of 30

Objective 5
Understand the perceived benefits and problems with the statement of financial position approach to tax allocation
The University of 31
Benefits and problems with statement of financial position approach
Perceived benefits:
– Smoothing of income
– Deferredtaxliabilityanddeferredtaxassetaremeasuredreliably
Perceived problems:
– Complexity in accounting
– Lack of relevance to users of financial information
– Are deferred tax liability/asset really a liability/asset? Consider the Conceptual Framework
The University of 32

Objective 6
Understand and apply the requirements of AASB 112
The University of 33
AASB 112 Income Taxes
– AASB 112 adopts the statement of financial position approach to
income tax accounting.
– Concept of tax base:
– The tax base of an asset or liability is the amount attributed to that asset or liability for tax purposes (AASB 112 para 7).
– Please ignore section 9.3.1 and section 9.3.2 (pp. 286 to 292 of H&P).
– In the following slides, we will explain how to work out the tax base figure which require you to understand the difference between the accounting treatment and the tax treatment for the particular asset and liability items.
The University of 34

Tax base: Assets
A machine cost $10,000. For accounting purposes, the depreciation expense for the year is $$2,000. For tax purposes, the company claims a depreciate allowance of $2,500.
Prepaid insurance of $800 is recognised as an asset for accounting purposes and then charged to expense over time. The tax treatment is to record the amount prepaid as an allowable deduction immediately.
Interest receivable has a carrying amount of $1,000. The related interest revenue will be taxed on a cash basis.
The University of 35
Carrying Amount
Carrying Amount
Prepaid insurance
Carrying Amount
Interest receivable
Tax base: Assets
Accounts receivables have a carrying amount of $1,500. The ATO recognises sales revenue for taxation purposes when it is earned.
For accounting purposes, doubtful debts of $300 are recognised as an expense as the likelihood of recovering the debt is doubtful. For tax purposes the deduction will only be allowed when the debt is written out of the books as bad.
The University of 36
Carrying Amount
Accounts receivable
Carrying Amount
Allowance for doubtful debts
Carrying Amount
Accounts receivable (net)

Tax base: Liabilities
Current liabilities include provision for warranty of $200. For tax purposes, warranty expense is not allowable as a deduction until the goods have been returned to be fixed and a warranty cost has been incurred.
Consulting revenue of $500 was received in advance. For tax purposes, consulting revenue will be taxed in future periods when consultancy service is provided to customers.
Interest revenue of $100 was received in advance. The related interest revenue is to be taxed on a cash basis.
The University of 37
Carrying Amount
Provision for warranty
Carrying Amount
Interest received in advance
Deferred tax liabilities and deferred tax assets
AASB 112 para. 5 Definitions:
– Taxable temporary differences
– Are temporary differences that will result in taxable amounts in determining taxable profit (tax loss) of future periods when the carrying amount of the asset or liability is recovered or settled.
– Deductible temporary differences
– Are temporary differences that will result in amounts that are deductible in determining taxable profit (tax loss) of future periods when the carrying amount of the asset or liability is recovered or settled.
The University of 38

AASB 112 requirements
A non-current asset cost 100 000 and accumulated depreciation for accounting purposes is 40 000:
• The carrying amount = 60 000
An amount of 55 000 has been claimed as a depreciation deduction for tax
• The tax base = 45 000 (100 000 – 55 000) Temporary difference: Carrying amount – Tax base
= 60 000 – 45 000
= 15 000 DTA or DTL?
DTL = 15 000 X .30 = 4 500 The University of 39
AASB 112 requirements
Journal entry to record the DTL
(assuming a 3 000 carried-forward DTL balance):
Dr Deferred income tax expense 1 500
Cr Deferred tax liability 1 500
– Again, starting from the DTL calculation of 4 500 (assuming a 5 500 carried-forward DTL balance):
Dr Deferred tax liability
Cr Deferred income tax expense The University of Sydney

AASB 112 requirements
Provision for long-service leave of $100 000
Carrying Amount Tax Base
Temporary difference
DTA or DTL?
= Amount according to tax rules = nil
= 100,000 – 0
DTA = 100 000 X 0.30 = 30 000 The University of 41
AASB 112 requirements
Journal entry to record DTA
Dr Deferred tax asset 30 000
Cr Deferred income tax expense Assume a 17 000 carried forward DTA balance
Dr Deferred tax asset
Cr Deferred income tax expense
The University of Sydney

Revalued assets
– Revaluation of property, plant and equipment is one of the circumstances that give rise to a taxable temporary difference.
– A depreciable asset was acquired for $100,000 with a useful life of 10 years.
– The asset was depreciated straight-line over the same useful life for accounting and tax purposes.
– After 5 years the asset is revalued to $75,000. The University of 43
Revalued assets
After revaluation:
– Carrying amount becomes $75,000
– Tax Base remains at $50,000
– CA> TB => gives rise to a taxable temporary difference of $25,000 => deferred tax liability of $7,500
In this case, current tax and deferred tax must be charged or credited directly to equity (AASB 112 para.61A, note in particular 61A(a) and (b)).
The University of 44

General journal entries to record revaluation and tax effects
Dr. Accumulated depreciation – asset Cr. Asset
Being closing of accumulated dep to asset account prior to revaluation
Cr. Revaluation surplus
Being revaluation of asset
Dr. Revaluation surplus
Cr. Deferred tax liability
Being deferred tax liability entry for revaluation
Note: The textbook uses a Revaluation surplus (OCI) account initially and then closes the account to Revaluation surplus (equity). This is not necessary. Please follow, instead, the journal entries on
this slide
The University of 45
H&P Example 9.5 page 298
Dr. Accumulated depreciation – asset Cr. Asset
Being closing of accumulated dep to asset account prior to revaluation
Cr. Revaluation surplus
Being revaluation of asset
Dr. Revaluation surplus
Cr. Deferred tax liability
Being deferred tax liability entry for revaluation
Note: Please follow these journal entries and not those used in the book on p. 299, i.e. ignore the use of Revaluation surplus (OCI) and journal entries that involve Income tax expense on revaluation (OCI)
The University of 46

Accounting for Income Taxes: Summary Steps
Step 1: Calculate taxable income to determine current tax liability and current income tax expense.
Step 2: Using a deferred tax worksheet (see H&P, p. 296), identify any temporary differences, determine the amount of any resulting deferred tax assets and deferred tax liabilities, and work out the changes in the deferred tax liability and deferred tax asset.
Step 3: Record the general journal entries for current income tax expense, deferred tax expense and changes in deferred tax asset and/or deferred tax liability.
The University of 47
Accounting for Income Taxes
– After criticism of the tax payable method of accounting for income tax, a new and more complicated method emerged that sought to smooth reported profits.
– With the emergence of the conceptual framework, which pays more attention to balance sheet items, this method was adjusted to what we see today.
– The method is controversial and requires thought:
– questions arise whether a deferred tax liability really is a liability as defined by the framework, and whether a deferred tax asset really is an asset as defined by the framework.
– questions also arise about the meaning of the amount reported in the income statement as income tax expense.
The University of 48

Next topic – Topic 9
Accounting for financial instruments
The University of 49

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