COMPARATIVE STUDY OF AS-22 (ACCOUNTING FOR TAXES ON INCOME) AND IAS-12 (INCOME TAXES)
[Submitted by Mr. Anshul Rastogi,
CA(Final),
Meerut, Uttar Pradesh]
July 6, 2007
- OBJECTIVE
(AS-22 and IAS-12)
To prescribe the accounting treatment for taxes on income.
- KEY DEFINITION
AS-22 (Accounting for taxes on income)
1. Timing Differences: Timing differences are the differences between the taxable income and accounting income for a period that originate in one period and are capable of reversal in one or more subsequent period.
2. Permanent Differences: Permanent differences are the differences between the taxable income and accounting income for a period that originate in one period and do not reverse subsequently.
IAS-12 (Income Taxes)
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- CURRENT TAX
AS-22 (Accounting for taxes on income)
A current tax liability or assets should be recognised for the estimated tax payable or refundable on tax returns for the current year.
| IAS-12 (Income Taxes)
Current tax liability or assets should be recognised for the current and prior period taxes to that extent it has not yet been settled. |
- RECOGNITION OF DEFERRED TAX LIABILITIES:
AS-22 (Accounting for taxes on income)
Deferred tax liabilities should be recognised for all timing differences without any exception.
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IAS-12 (Income Taxes) Deferred tax liabilities should be recognised for all taxable temporary difference except liabilities arising from - goodwill for which amortization is not deductible for tax purpose. - the initial recognition of an asset/liability other than in a business combination which, at the time of transaction, does not affect either accounting or the taxable profit; and - undistributed profits from investments where the enterprise is able to control the timing of reversal of the differences and it is probable that the reversal will not occur in the foreseeable future. |
- RECOGNITION OF DEFERRED TAX ASSETS
AS-22 (Accounting for taxes on income)
Deferred tax assets should be recognised for timing differences, unused tax losses and unused tax credits to the extent that there is a reasonable certainty that sufficient future taxable income will be available against which such deferred tax asset can be realized.
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IAS-12 (Income Taxes) Deferred tax assets should be recognised for deductible temporary differences, unused tax losses and unused tax credits to the extent that it is probable that taxable profit will be available against which the such deferred tax assets can be utilized except assets arising from the initial recognition of an asset/liability other than in a business combination which, at the time of transaction, does not affect either accounting or the taxable profit. Deferred tax assets for deductible temporary differences arising from investments in subsidiaries, associates, branches and joint venture should be recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and that taxable profit will be available against which such deferred tax assets will be utilized. |
- MEASURMENT OF DEFERRED TAX ASSETS AND LIABILITIES:
AS-22 (Accounting for taxes on income)
Deferred tax assets and liabilities should be measured using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date.
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IAS-12 (Income Taxes) Deferred tax assets and liabilities should be measured using the tax rates expected to apply to the period when the asset is realized or the liability is settles, based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. |
- DISCOUNTING OF DEFERRED TAX ASSETS AND LIABILITIES
(AS-22 AND IAS-12)
Deferred tax assets and liabilities are not discounted to their present value.
- REVIEW OF DEFERRED TAX ASSETS
(AS-22 AND IAS-12)
The carrying amount of deferred tax asset should be reviewed at each balance sheet date and reduce to the extent that it is no longer probable that sufficient taxable profit will be available against such deferred tax assets can be realized.
- RECOGNITION OF TAX EXPENSES OR INCOME
AS-22 (Accounting for taxes on income)
Tax expense or income, comprising current tax and deferred tax, should be included in the determination of the net profit or loss for the period.
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IAS-12 (Income Taxes) Tax expense or income, comprising current tax and deferred tax, should be included in the determination of the net profit or loss for the period, except to the extent that the tax arises from - a transaction or event that is recognised directly to the equity. (If tax expense or income relates to items that are directly charged or credited to the equity, the tax should also be charged or credited to the equity.) - a business combination accounted for as an acquisition. (If tax expenses or income arises from a business combination that is an acquisition, it should be recognised in accordance with IFRS-3 'Business Combination'.) |
- PRESENTATION
(AS-22 AND IAS-12)
1. An enterprise should offset current tax asset and current tax liabilities if the enterprise has a legally enforceable right and the intention to settle on a net basis.
2. An enterprise should offset deferred tax asset and deferred tax liabilities if the enterprises has a legally enforceable right to settle on a net basis and they are levied by the same taxation laws.
- DISCLOSUE
AS-22 (Accounting for taxes on income)
1. Break up of deferred tax asset and liabilities.
2. Principal of offsetting the current tax asset and liabilities.
3. Principal of offsetting the deferred tax asset and liabilities.
4. Deferred tax asset and liabilities are distinguished from asset and liabilities representing current tax for the period.
5. Nature of evidence supporting the recognition of deferred tax asset.
6. Recognition of deferred tax asset for unabsorbed depreciation.
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IAS-12 (Income Taxes)
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AS-22 (Accounting for taxes on income) is based on balance sheet approach or the timing differences approach and IAS-12 (Income taxes) is based on the income statement or temporary differences approach.
[Note: Author will not be responsible for any loss of action to any one, in any manner. It is suggested that to avoid any doubt reader should cross check all the fact with original Accounting Standard (AS) and International Accounting Standard (IAS).]
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