...ACCOUNTING FOR INCOME TAXES RECONCILIATIONS REQUIRED BY IFRS AND ASPE RECONCILING WHEN USING THE ACCRUAL (DEFERRAL) METHOD IFRS requires that the notes to the financial statements include a reconciliation of the accounting income before income tax multiplied by the statutory tax rate for the year and the income tax expense for the year. When the accrual (deferral) method is used, as is required by IFRS, temporary differences are accounted for through the deferred tax expense for the year so there will be two types of reconciling items. These are the tax effects of permanent differences and the effect of rate changes on deferred tax asset and liability balances. Non-taxable revenues will result in a reconciling item equal to the tax that would have been recognized in income tax expense if the items were taxable. This will be the amount of the non-taxable revenue multiplied by the tax rate for the year. Non-deductible expenses will result in a reconciling item increasing taxes by the amount that income tax expense would have been reduced if the expenses had been deductible. This will be the amount of the non-deductible expenses multiplied by the income tax rate. The impact of the change in income tax rates can be calculated by determining the amount of the temporary differences at the time of the rate change and multiplying by the change in the rate. This can be done for each temporary difference (and then summed) or can be done on the net temporary differences at the...
Words: 822 - Pages: 4
...FUNDAMENTALS OF ACCOUNTING FOR INCOME TAXES Pretax financial income For financial reporting according to GAAP Providing information to investors and creditor Used to compute the Income Tax Expense Taxable income According to Internal Revenue Code Used to compute the Income Tax Payable Income tax expense and income taxes payable differed over years, but the they are equal in total Temporary difference: the difference between the tax basis of an asset of liability and its reported (book) amount in the financial statements, which will result in taxable amounts or deductible amounts in future years. Taxable amounts: increase taxable income in future years Deductible amounts: decrease taxable income in future years Deferred Tax Liability The deferred tax consequences due to taxable temporary difference; the increase in taxes payable in future years as a result of taxable temporary differences existing at the end of the current year Income tax expense = current tax expense (income taxes payable for the period) + deferred tax expense (inc. in the deferred tax liability balance from beg. to the end of the period) Deferred Tax Asset Recognize in the current year the tax benefits for the tax deductions that will result from the future settlement of a liability The increase in taxes refundable (or saved) in the future years as a result of deductible temporary differences existing at the end of the current year Deferred tax benefit: the inc. in the deferred tax asset from the beg....
Words: 463 - Pages: 2
...analysis which company provides the better level of disclosures for accounting for income tax. Finally, a documentation which reflects the team-work performance will also be presented. AASB | Requirements of the Regulation | Company Analysis--ADQ | Yes/No1 | Company Analysis--EAL | Yes/No1 | 101:54 | Minimum line items on statement of financial position(n) current tax asset/liability(o) deferred tax asset/liability | (n) N/A - ADQ made a loss in previous year(o) DTA disclosed N/A DTL - set off of DTL SFP. P34 | YesYes | (n) Current tax payable disclosed(o) DTA and DTL disclosed SFP. P32 | YesYes | 101: 56 | Deferred tax asset/liability shall not be classified as current. | DTA and DTL classified as non-currentSFP. P34 | Yes | DTA and DTL classified as non-currentSFP. P32 | Yes | 101:82(d)& 112:77 | Tax expense disclosed separately in statement of comprehensive income. | Expense disclosed SCI. P33 | Yes | Expense disclosed SCI. P30 | Yes | 101:90101:91 | Tax related to each item of other comprehensive income disclosed separately or net of tax | N/A – no items of other comprehensive incomeSCI. P33 | Yes | N/A – no items of other comprehensive incomeSCI. P30 | Yes | 101:120 | Disclosure of accounting policy for tax | Policy disclosedN2(g). P39 | Yes | Policy disclosedN3(c). P35,36 | Yes | 107:35 | Cash flow from tax on income disclosed separately as operating. | Cash received disclosed as operating outflowSCF...
Words: 1448 - Pages: 6
...Tax Midterm Chapter 1: Taxation- Its role in decision making Taxation and the financial decision process * Taxation is a controllable cost * Tax cost = cost of doing business * Analyzed to determine which actions or activities have a greater/lesser impact on the resulting tax cost * Each alternative= different impact on the amount of tax and the timing of the payment of tax * Even if marketing decision = direct effect on the long term tax cost of the firm → thus on profits and value * Tax= important on any decision making * Tax costs are relevant when alternative strategies are being considered * Cash flow (CF) exists only on an after-tax basis * All CF= after tax * NPV compared and ranked * Shows the actual value of the individual/corporation * Analysis can’t be of value unless the real tax impact is included * Alternative action to minimize the tax impact * After tax = % of interest x (1 – Tax rate) * 5% dividend on the equity of a “public corporation” = not deductible to the business → after tax = 5% (real cost) * Net value to individual investor subject to 45% tax rate = 3.6% (after applying dividend tax credit) The fundamental income tax structure and its complexity Taxpayers * Individuals * Corporations * Trusts | Business & investment structures * Proprietorship * Corporation * Partnership * Limited partnership * Joint venture...
Words: 6661 - Pages: 27
...|Owner’s Equity |Revenues |Expenses | |Cash |Intangible Assets |Accounts Payable |Mortgage Payable |Common Stock |Sales Revenue |Purchases | |Cash Equivalents |Copyrights |Interest Payable |Deferred Income Taxes |Capital Stock |Less: Sales Discounts |Less: Purchases | |Marketable Securities |Trademarks |Loan Payable (Short |Loan Payable (Long |Preferred Stock |Less: Sales Return & |Discounts | |Trade Receivables |Goodwill |Term) |Term) |(Treasury Stock) |Allowances |Less: Purchases Returns | |Accounts Receivable |Patents |Unearned Revenues |Note Payable (Long |Paid In Capital |Rent Revenue |& Allowances | |Less: Allowance for |Long Term Investments |Salaries Payable |Term) |Additional Paid in |Professional Fees |Cost of Merchandise Sold| |Doubtful or |Fixed Assets |Accrued Expenses |Bonds Payable |Capital |Revenue (Earned) |Cost of Goods Sold | |Uncollectible Accounts |Land – No |Sales Tax Payable |(Discount on Bonds |Premium on Stock |Interest Income |Supplies Expense | |Note Receivable |deprecia |Income Tax Payable |Payable) |Retained...
Words: 331 - Pages: 2
...Statements - Ownership Patterns and Income Taxes Chapter Outline I. Indirect subsidiary control A. Control of subsidiary companies within a business combination is often of an indirect nature; one subsidiary possesses the stock of another rather than the parent having direct ownership. 1. These ownership patterns may be developed specifically to enhance control or for organizational purposes. 2. Such ownership patterns may also result from the parent company's acquisition of a company that already possesses subsidiaries. B. One of the most common corporate structures is the father-son-grandson configuration where each subsidiary in turn owns one or more subsidiaries. C. The consolidation process is altered somewhat when indirect control is present. 1. The worksheet entries are effectively doubled by each corporate ownership layer but the concepts underlying the consolidation process are not changed. 2. Calculation of the accrual-based income of a subsidiary recognizing the consolidated relationships is an important step in an indirect ownership structure. a. The determination of accrual-based income figures is needed for equity income accruals as well as for the computation of noncontrolling interest balances. b. Any company within the business combination that is in both a parent and a subsidiary position must recognize the equity income accruing from its subsidiary before...
Words: 4034 - Pages: 17
...on the tax return exceeded depreciation reported on the income statement by 120,000. This difference will reverse in equal amounts of 30,000 over the years 2011-2014. B. Interest received on municipal bonds was 10,000. C. Rent collected in advance on Jan 1 2010 totaled 60,000 for a 3 year period. Of this amount 40,000 was reported as unearned at Dec 31 for book purposes. D. The tax rates are 40% for 2010 and 35% for 2011 and subsequent years. E. Income taxes of 320,000 are due per the tax return for 2010. F. No deferred taxes existed at the beginning of 2010. 1. Compute taxable income for 2010 2. Compute pretax financial income for 2010 3. Prepare the journal entries to record income tax expense deferred income taxes and income taxes payable for 2010 and 2011. Assume taxable income was 980,000 in 2011. $. Prepare the income tax expense section of the income statement for 2010 beginning with "income before income taxes." (a) X (.40) = $320,000 taxes due for 2010 X = $320,000 ÷ .40 X = $800,000 taxable income for 2010 (b) Taxable income [from part (a)] $800,000 Excess depreciation 120,000 Municipal interest 10,000 Unearned rent (40,000) Pretax financial income for 2010 $890,000 (c) 2010 Income Tax Expense ($320,000 + $42,000 – $14,000) 348,000 Deferred Tax Asset ($40,000 X .35) 14,000 Income Tax Payable ($800,000 X .40) 320,000 Deferred Tax Liability ($120,000 X .35) 42,000 2011 Income Tax Expense ($343...
Words: 336 - Pages: 2
...shares but does not actively work in corporation can draw dividends only. This paper will focus on the active owners of a small business corporation. The analysis will compare the methods and the impact on owners as well as the corporation using each approach. The mix method will also be analyzed and discussed. Basic tax concepts are based on the theory of integration. BDO defines Integration in The Tax Factor, they say that” A tax system is said to be integrated if the same amount of overall tax is paid when the income is earned indirectly through a corporation or directly by an individual.” (BDO Dunwoody, 2009, p.1) According to this theory there should be no difference to the individual regardless of the method chosen. But we know that in order for there to be integration the rates have to be perfectly matched. The tax system in Canada is not perfect and there will be a savings or a cost when drawing dividends (BDO Dunwoody LLP, 2009). Provincial corporate and personal tax rates vary significantly from provinces to province. The corporate tax rates have been very active, consistently dropping in many provinces. Along with tax rates dropping, small business limits have been...
Words: 3252 - Pages: 14
...ABB v Comptroller of Income Tax [(2010) MSTC 70-000] The appellant is the widow of an employee taxpayer and brought the appeal in her capacity as the executrix of his estate. Prior to his death, the taxpayer was granted share options in several companies in a group of related companies. The various share option schemes were administered by Executive Committees which had the discretion to allow a participant to retain share options which would otherwise have lapsed, vary the number of shares comprised in the share option and the period during which they have to be exercised. After the death of the taxpayer in 2005, the Committees exercised their discretion to allow the estate to retain and exercise the share options that had been granted to the taxpayer prior to his death, which would prima facie have lapsed due to the death of the taxpayer. In addition, the exercise periods for certain of the share options which were not exercisable yet were brought forward such that those share options could be exercised immediately by the estate. Effectively the Committees’ decision only restored the share options, which would have lapsed, but did not confer any new share options on the estate. The share options were subsequently exercised by the estate in 2006, and the gains derived from the exercise which amounted to over $8m for the year of assessment 2007, were taxed by the respondent. Tax from the gains amounted to $1.7m. On appeal to the Income Tax Board of Review, the...
Words: 4857 - Pages: 20
...Chapter 9 Taxation: Income and Wealth Classification of Taxes on Income and Wealth: 1. the personal and corporate income taxes; 2. the transfer taxes, namely, the estate and inheritance taxes; 3. the real property tax on realty used for personal purposes; 4. the individual residence tax, both basic and additional; 5. the tax on motor vehicle used for personal purposes; 6. the immigration tax; 7. firearms license fee; 8. hunting permits; and 9. social security contributions, both of private and public employees. Arguments for Taxes on Income and Wealth Taxation is a fiscal tool of government for the achievement of economic, sometimes non-economic, goals. GOALS: 1. maximum freedom for choice, consistent with the welfare of others; 2. optimum standards of living, in terms of available resources and techniques; 3. an optimum rate of economic growth; and 4. distribution of income in conformity with the standards of equity currently accepted by society. Characteristics of Tax System Economic effects. – The tax structure must be established in such a way as to avoid interference with the attainment of the optimum allocation and use of resources and where possible, to assist in the attainment of the optimum. Equity. – The distribution of the tax burden must conform to the pattern of income distribution regarded as the optimum by the consensus in contemporary society. Minimum costs of collection and compliance, consistent with effective enforcement....
Words: 3264 - Pages: 14
...Subject: Income tax treatment I appreciate that you choose me to deal with the questions for you, these are really good questions which we should pay attention to. In this memo, I would answer your questions about the specific treatment of your company’s income taxes according to my research in FASB Accounting Standard Codification and other sources. First, you ask about if the income taxes should be considered as an expense for financial reporting purpose. According to my research, I found that most accountants now agree that corporate income tax is an expense. Treating income tax as an expense is required under GAAP. This treatment is consistent with proprietary theory because the earnings that accrue to owners are reduced by corporate obligations to the government. Also, because the income tax does not result from transactions with owners, expensing corporate income tax is consistent with the SFAC No. 6 definition of comprehensive income. Thus, on the surface, accounting for income taxes would appear to be a nonissue. So for your company’s financial reporting, you should treat income taxes as an expense. Your second question is about the difference between intraperiod and interperiod tax allocation and how to differ these two, as well as the effect on financial reporting of these two methods. This is really a good question, because new start-up company would always be confused at this part. Intraperiod tax allocation method that allocates total income tax expense or benefit...
Words: 976 - Pages: 4
...Corporate taxation in Kenya Income Tax, or the tax on income, is charged on income of a person (individual & or Companies) for each year in accordance with section 3(1) of the Income Tax Act. S 3(1)’’..... a tax to be known as income tax shall be charged for each year of income upon all the income of a person, whether resident or non-resident, which accrued in or was derived from Kenya.’’ It is important to understand the words and phrases used in the taxation of income for easier interpretation. These include: Year of income. Year of Income is a period of 12 months commencing 1 January and ending on 31 December in each year. It is the same as calendar year. Income tax is charged for each year of income. The year of income should be distinguished from the accounting year. There is a date to which accounts of a business are prepared each year, and this date would indicate the accounting year end. The accounting year ending on 31 December would coincide with the year of income. Other accounting year-ends would however fall in a given year of income and the profit or loss per the accounts would be for that year of income. For example, an accounting date ended 30 May 2011 would fall to be treated as the year of Income 2011. (Taxable) income this is a gross income from various sources minus allowable deductions i.e. expenses incurred wholly and exclusively in the production of the income. (Taxable) person, A person whose income is taxed is either: a) an...
Words: 1017 - Pages: 5
...research about tax planning and ways to save tax for both individual taxpayers and business owners. There are many different types of tax planning that can be beneficial for all taxpayers. Besides that, by researching of ways to help individual taxpayers and business owners to save tax, I have learnt that there are many tax exemptions such as medical, dental, and childcare benefits. Moreover, the government has provided taxpayers with many tax reliefs such as personal relief, wife relief, child relief, medical expenses relief and so many more to help reduce the chargeable income of individual taxpayers. Furthermore, the government also provides tax rebates for individual taxpayers as well. By applying all the knowledge gain into tax planning, taxpayers will be well equipped in managing their taxes and will be able to make prompt payment and be able to fully utilize all the different ways for them to save on tax. Task 1 : Explain what tax planning is. 1.1: Meaning of Tax Planning Tax planning involves planning in order to avail all exemptions, deductions, and rebated provided in Act. The Income tax law itself provides for various methods for tax planning. Tax planning, whether personal or company, are interrelated and integrate part of the planning process. Generally it is provided under tax exemptions, tax deductions, personal rebates and personal reliefs. Tax planning is resorted to maximize the cash inflow and minimize the cash outflow. Since tax is kind of cost...
Words: 3817 - Pages: 16
...9 4. 4.1 4.2 4.3 5 5.1 5.2 5.3 6 6.1 6.2 6.3 7 7.1 7.2 7.3 A Brief Survey Geography Population and Languages Political System The Economy Swiss Company Law Governing Law and Forms of Business Enterprises Corporation Books of Account Annual Business Report Taxation of Resident Corporations Liability to Swiss Tax Determination of Taxable Income Tax Privileged Corporations Treaty Benefits for Swiss Resident Corporations Computation of Corporate Taxes Assessment of Corporate Taxes Withholding Taxes of Dividend Distributions of Swiss Corporations Filing of Tax Returns, Assessments of Tax, Tax Litigation Corporate Reorganizations Taxation of Non-Resident Corporations Liability to Swiss Tax Determination of Taxable Income and Capital of Swiss Permanent Establishments Remittance of Profits Withholding Tax Income Subject to Withholding Tax Exemptions from Withholding Tax Withholding and Reimbursement of Tax Indirect Taxes Value Added Tax Stamp Duties Real Estate Taxes Personal Taxation Income Taxes on Residents Income Taxes on Non-residents Other Individual Taxes Seite 2 7.4 8 8.1 8.2 8.3 9 9.1 9.2 10 10.1 10.2 10.3 10.4 10.5 10.6 Tax Returns, Assessment and Payment of Tax Labour Conditions an Social Security Working Conditions Social Security Social Security Treaties Government Incentives Export Risk Guarantee Program Investment Incentives Government Controls Import and Export Controls Restrictions on Investment Acquisition of Swiss Real Property Anti-Trust Legislation Price...
Words: 17163 - Pages: 69
...a) PP&E | | Carryingamount | | UCC | | Difference | Tax 30% | | Future Tax | Bal. Dec. 31, 2010 | | $ 1,256,000 | | $ 998,000 | | $ (258,000) | $ (77,400) | | Liability | For 2011 175,000 192,000 (17,000) (5,100) Bal. Dec. 31, 2011 1,081,000 806,000 (275,000) (82,500) Liability For 2012 180,000 163,500 16,500 4,950 Bal. Dec. 31, 2012 $ 901,000 $ 642,500 $ (258,500) $ (77,550) Liability Restructuring Charges Accrued Liability Taxbasis Difference Tax 30% Future Tax Bal. Dec. 31, 2010 | | $ (199,500) | | $ 0 | | $ (199,500) | $ 59,850 | | Asset | For 2011 131,500 0 161,500 (39,450) Bal. Dec. 31, 2011 (68,000) 0 (68,000) 20,400 Asset For 2012 68,000 0 68,000 (20,400) Bal. Dec. 31, 2012 $ 0 $ 0 $ 0 $ 0 G/P deducted Deferred From Profit for Profit on Property Sale A/R Tax Difference Tax 30% Future Tax Bal. Dec. 31, 2010 $ -0- -0- -0- -0- For 2011 -0- $ 46,800 $ (46,800) $ (14,040) Bal. Dec. 31, 2011 -0- 46,800 (46,800) (14,040) Liability For 2012 -0- (15,600) 15,600 4,680 Bal. Dec. 31, 2012 -0- $ 31,200 $ (31,200) $ (9,360) Liability (b) ...
Words: 1301 - Pages: 6
