Download Income Tax Notes - 2012 for CSS Optional Subject Auditing & Accounting. www.thecsspoint.comFull description
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Some of the Income Tax Numericals for B.Com Part 2 Punjab University Students
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Income Tax Quick NotesFull description
ACCOUNTING FOR INCOME TAX (TOPIC OUTLINE) A. Accounting Income / Pre-Tax Income / Financial Income vs Taxable Income 1.
- the net income of the period Accounting/Pre-tax/Financial Accounting/Pre-tax/Financial Income -
2. Taxable Income – income for the period determined d etermined in accordance with the rules established by the tax authorities (BIR) FINANCIAL INCOME +/- Permanent Differences Income SUBJECT to tax +/- Temporary Differences TAXABLE INCOME Tax Rate
Current Income Tax Expense
B. Permanent Differences – NO FUTURE TAX CONSEQUENCES 1.
Non-taxable Revenue – these are DEDUCTED from Accounting Income 1)Interest 1) Interest income on deposits 2) Dividends received
2. Non-deductible Expenses – these are ADDED to Accounting Income 1)Life 1) Life insurance premium 2) Tax penalties, surcharges and fines C. Temporary Differences 1.
Timing Differences Deferred Tax Asset
Deferred Tax Liability
ADDED to ADDED to Income Subject to Tax
DEDUCTED from DEDUCTED from Income subject to Tax
*causes Taxable Income > Accounting Income *gives rise to DTA (Deferred Tax Asset)
*causes Taxable Income > Accounting Income *gives rise to DTL (Deferred Tax Liability)
a. Advance Payments – (advance rental, deposits)
a) Installment Sale - *cash basis taxation
b. Litigation Loss
b) Accelerated Depreciation
c. Research Cost
c) Development Cost
d. Impairment Loss
d) Prepaid Expenses
e. Doubtful Accounts (Provisions in AR)
2. Tax Base and Carrying Amount Differences Deferred Tax Asset ADDED to Income Subject to Tax *causes Taxable Income > Accounting Income *gives rise to DTA (Deferred Tax Asset)
Deferred Tax Liability DEDUCTED from Income subject to Tax *causes Taxable Income > Accounting Income *gives rise to DTL (Deferred Tax Liability)
When Tax Base of ASSET > Carrying Amount
When Tax Base of ASSET < Carrying Amount
When Tax Base of LIABILITY < Carrying Amount
When Tax Base of LIABILITY > Carrying Amount
3. Other Temporary Differences Deferred Tax Asset ADDED to Income Subject to Tax *causes Taxable Income > Accounting Income * gives rise to DTA (Deferred Tax Asset) * future deductible
a) Asset is revalued DOWNWARD b) Tax Base of Investment in S, A and JV is HIGHER than Carrying Amount c) Operating Loss Carry-forward * an EXCESS of tax deductions over gross income of the year (resulting to a negative taxable income) maybe carried forward to reduce the taxable income of the future years
Deferred Tax Liability DEDUCTED from Income subject to Tax *causes Taxable Income > Accounting Income * gives rise to DTL (Deferred Tax Liability) * future taxable
a) Asset is revalued UPWARD *DTL is recognized on Revaluation Surplus *RS x Tax Rate = DTL
b) Tax base of Investment in S, A and JV is LOWER than Carrying Amount c) Cost of business combination allocated to the identifiable asset and liabilities at FAIR VALUE
Deferred Tax Liability 1) Goodwill resulting from business combination (goodwill at initial recognition) 2) Initial recognition of asset and liability 3) Undistributed profit * the parent, investor or venture is able to control the timing of the reversal of temporary differences * it is probable that the temporary differences will not be reversed in the future
D. Accounting Procedures 1) Determine the Taxable Income Accounting/Pretax/Financial Income +/- Permanent Differences Income Subject to Tax LESS: Taxable Temporary Differences ADD: Deductible Temporary Differences TAXABLE INCOME
2) Determine the Taxable Temporary Differences and Deferred Tax Liability Taxable Temporary Differences X Tax Rate = Deferred Tax Liability
3) Determine the Deductible Temporary Differences and Deferred Tax Asset Deductible Temporary Differences X Tax Rate = Deferred Tax Asset
4) Determine the Total Income Tax Expense Income Tax Subject to Tax/*Accounting Tax X Tax Rate = TOTAL INCOME TAX EXPENSE *(if there is no Permanent Differences) - OR – Current Income Tax Expense ADD: Deferred Tax Liability/Expense LESS: Deferred Tax Asset/Benefit TOTAL INCOME TAX EXPENSE * this will appear in Current-Year Income Statement
5) From the Total tax Expense, distinguish which is: a) Current Income Tax Expense (Current Tax Liability) Income Tax Subject to Tax X Tax Rate = Income Tax Payable (CURRENT TAX LIABILITY) * Income tax Benefit reduces the Current Tax Expense * Income Tax Asset may be credited directly to Income Tax Expense (Valix:2013 p501)
b) Deferred Tax Expense (Non-current Liability) if any: Deferred Tax Liability – Deferred Tax Benefit = DEFERRED TAX LIABILITY # when offsetting is allowed #when DTL is GREATER than DTA
6) Prepare Income Statement: Accounting/Pretax/Financial Income TOTAL Income Tax Expense: ADD: Deferred Tax Liability / Increase in Deferred Tax Expense LESS: Decrease in Deferred Tax Liability LESS: Deferred Tax Benefit NET INCOME
