Ind AS 12 – Income Taxes – Introduction  Balance sheet approach Ind AS 12, as the name suggests, prescribes the accounting treatment for income taxes. Under the accounting standards, the relevant corresponding standard is AS 22 Taxes on Income. AS 22 required entities to account for deferred taxes using the income statement approach. Ind AS 12, on the other hand, requires the balance sheet approach to be followed for accounting for income taxes. The income statement approach focuses on timing differences, whereas the balance sheet approach focuses on temporary differences. Timing differences are differences between taxable profit and accounting profit…

Current Tax & Deferred Tax – Ind AS 12 Current Tax Current tax, to the extent unpaid, should be recognised as a liability. If the amount already paid exceeds the amount due to be paid, the excess shall be recognised as an asset. In some jurisdictions, tax losses can be carried back to recover taxes paid in previous periods. The benefit relating to a tax loss that can be carried back to recover current tax of a previous period shall be recognised as an asset. An entity recognises the benefit as an asset in the period in which the tax…

Business Combination – Context of Ind AS 12 General Generally, the identifiable assets acquired, and liabilities assumed in a business combination are recognised at their fair values at the acquisition date. Temporary differences arise when the tax bases of the identifiable assets acquired, and liabilities assumed are not affected by the business combination or are affected differently. For example, when the carrying amount of an asset is increased to fair value but the tax base of the asset remains at cost to the previous owner, a taxable temporary difference arises which results in a deferred tax liability. In accordance with…

Initial recognition of an asset or liability – Ind AS 12 General A temporary difference may arise on initial recognition of an asset or liability, for example if part or all of the cost of an asset will not be deductible for tax purposes. The method of accounting for such a temporary difference depends on the nature of the transaction that led to the initial recognition of the asset or liability: in a business combination, an entity recognises any deferred tax liability or asset and this affects the amount of goodwill or bargain purchase gain it recognises (see above) if…

Measurement of deferred tax assets and liabilities – Ind AS 12 General Deferred tax assets and liabilities shall be measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. Deferred tax assets and liabilities shall not be discounted. When different tax rates apply to different levels/ slabs of taxable income, deferred tax assets and liabilities are measured using the average rates that are expected to apply…

Presentation & Disclosure – Ind AS 12 Presentation Tax assets and tax liabilities Offset An entity shall offset current tax assets and current tax liabilities if, and only if, the entity: has a legally enforceable right to set off the recognised amounts; and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. An entity shall offset deferred tax assets and deferred tax liabilities if, and only if: the entity has a legally enforceable right to set off current tax assets against current tax liabilities; and the deferred tax assets and the…

Changes in the Tax Status of an Entity or its Shareholders – Ind AS 12 Issue A change in the tax status of an entity or of its shareholders may have consequences for an entity by increasing or decreasing its tax liabilities or assets. This may, for example, occur upon the public listing of an entity’s equity instruments or upon the restructuring of an entity’s equity. It may also occur upon a controlling shareholder’s move to a foreign country. As a result of such an event, an entity may be taxed differently; it may for example gain or lose tax…

Uncertainty over Income Tax Treatments – Ind AS 12 Issue It may be unclear how tax law applies to a particular transaction or circumstance. The acceptability of a particular tax treatment under tax law may not be known until the relevant taxation authority or a court takes a decision in the future. Consequently, a dispute or examination of a particular tax treatment by the taxation authority may affect an entity’s accounting for a current or deferred tax asset or liability. When there is uncertainty over income tax treatments, this Appendix addresses: whether an entity considers uncertain tax treatments separately; the…