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AS-22 v/s IAS-12
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
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OBJECTIVE
(AS-22 and IAS-12)
To prescribe the accounting treatment for taxes on income.
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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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Temporary Differences: Temporary differences are the
differences between the carrying amount of an asset or liability
and its tax base.
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Taxable Temporary Differences: A temporary difference that
will result in taxable amounts in the future when the
carrying amount of the assets is recovered or the liability is
settled.
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Deductible Temporary Differences: A temporary difference
that will result in amounts that are tax deductible in the
future when the carrying amount of assets is recovered or the
liability is settled.
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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.
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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. |
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RECOGNITION OF DEFFERED 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
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goodwill for which amortization is not deductible for tax
purpose.
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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
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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. |
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RECOGNITION OF DEFFERED 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. |
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MEASURMENT OF DEFFERED 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. |
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DISCOUNTING OF DEFFERED TAX ASSETS AND LIABILITIES
(AS-22 AND IAS-12)
Deferred tax assets and liabilities are not discounted to their present
value.
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REVIEW OF
DEFFERED 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.
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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
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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.)
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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'.) |
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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.
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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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Current tax asset and liabilities
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Deferred tax asset and liabilities (Always classified as non
current)
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Changes in tax rates.
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Major
component of tax expense or income.
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Tax
expenses or income relating to ordinarily and extraordinary
activities.
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Details of deductible temporary differences, unused tax losses and
unused tax credits.
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Current and deferred tax relating to items reported directly in
equity.
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Temporary differences associated with investment in subsidiaries,
associates, branches and joint ventures.
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For
each type of temporary difference, unused loss and unused tax
credit, the amount of deferred tax income or expenses recognised
in the income statement.
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Explanation of the relationship between tax expense or income and
the tax that would be expected by applying the current tax rate to
accounting profit or loss.
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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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