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 deferred tax liabilities relate to income taxes levied by the same taxation authority oneither:

(i) the same taxable entity; or

(ii) different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.

Current/ Non-current

  • IAS 1 Presentation of financial statements requires an entity to present current and non-current assets, and current and non-current liabilities, as separate classifications in its statement of financial position.
  • However, an entity shall not classify deferred tax assets/ liabilities as current assets/ liabilities, i.e. deferred taxes shall always be classified as non-current.

Tax expense

  • Tax expense (income) related to profit or loss from ordinary activities
  • The tax expense (income) related to profit or loss from ordinary activities shall be presented as part of profit or loss in the statement of profit and loss.

Exchange differences on deferred foreign tax liabilities or assets

  • Ind AS 21 requires certain exchange differences to be recognised as income or expense but does not specify where such differences should be presented in the statement of profit and loss.
  • Accordingly, where exchange differences on deferred foreign tax liabilities or assets are recognised in the statement of profit and loss, such differences may be classified as deferred tax expense (income) if that presentation is considered to be the most useful to financial statement users.

Disclosure

Major components

  • The major components of tax expense (income) shall be disclosed separately, including:
  • current tax expense (income);
  • any adjustments recognised in the period for current tax of prior periods;
  • the amount of deferred tax expense (income) relating to the origination and reversal of temporary differences;
  • the amount of deferred tax expense (income) relating to changes in tax rates or the imposition of new taxes;
  • the amount of the benefit arising from a previously unrecognised tax loss, tax credit or temporary difference of a prior period that is used to reduce current tax expense;
  • the amount of the benefit from a previously unrecognised tax loss, tax credit or temporary difference of a prior period that is used to reduce deferred tax expense;
  • deferred tax expense arising from the write-down, or reversal of a previous write-down, of a deferred tax asset; and
  • the amount of tax expense (income) relating to those changes in accounting policies and errors that are included in profit or loss in accordance with Ind AS 8, because they cannot be accounted for retrospectively.

 

The following to be disclosed separately:

  • the aggregate current and deferred tax relating to items that are charged or credited directly to equity;
  • the amount of income tax relating to each component of other comprehensive income;
  • an explanation of the relationship between tax expense (income) and accounting profit in either or both of the following forms:
    • a numerical reconciliation between tax expense (income) and the product of accounting profit multiplied by the applicable tax rate(s), disclosing also the basis on which the applicable tax rate(s) is (are) computed; or
    • a numerical reconciliation between the average effective tax rate and the applicable tax rate, disclosing also the basis on which the applicable tax rate is computed;
  • an explanation of changes in the applicable tax rate(s) compared to the previous accounting period;
  • the amount (and expiry date, if any) of deductible temporary differences, unused tax losses, and unused tax credits for which no deferred tax asset is recognised in the balance sheet;
  • the aggregate amount of temporary differences associated with investments in subsidiaries, branches and associates and interests in joint arrangements, for which deferred tax liabilities have not been recognised;
  • in respect of each type of temporary difference, and in respect of each type of unused tax losses and unused tax credits:
    • the amount of the deferred tax assets and liabilities recognised in the balance sheet for each period presented;
    • the amount of the deferred tax income or expense recognised in profit or loss, if this is not apparent from the changes in the amounts recognised in the balance sheet;
  • in respect of discontinued operations, the tax expense relating to:
    • the gain or loss on discontinuance; and
    • the profit or loss from the ordinary activities of the discontinued operation for the period, together with the corresponding amounts for each prior period presented;
  • the amount of income tax consequences of dividends to shareholders of the entity that were proposed or declared before the financial statements were approved for issue, but are not recognised as a liability in the financial statements;
  • if a business combination in which the entity is the acquirer causes a change in the amount recognised for its preacquisition deferred tax asset, the amount of that change; and
  • if the deferred tax benefits acquired in a business combination are not recognised at the acquisition date but are recognised after the acquisition date, a description of the event or change in circumstances that caused the deferred tax benefits to be recognised.

Deferred tax asset

  • An entity shall disclose the amount of a deferred tax asset and the nature of the evidence supporting its recognition, when:
  • the utilisation of the deferred tax asset is dependent on future taxable profits in excess of the profits arising from the reversal of existing taxable temporary differences; and
  • the entity has suffered a loss in either the current or preceding period in the tax jurisdiction to which the deferred tax asset relates.

Other disclosures

  • An entity shall disclose the nature of the potential income tax consequences that would result from the payment of dividends to its shareholders.
  • In addition, the entity shall disclose the amounts of the potential income tax consequences practicably determinable and whether there are any potential income tax consequences not practicably determinable.
  • In explaining the relationship between tax expense (income) and accounting profit, an entity uses an applicable tax rate that provides the most meaningful information to the users of its financial statements.
  • Often, the most meaningful rate is the domestic rate of tax in the country in which the entity is domiciled, aggregating the tax rate applied for national taxes with the rates applied for any local taxes which are computed on a substantially similar level of taxable profit (tax loss). However, for an entity operating in several jurisdictions, it may be more meaningful to aggregate separate reconciliations prepared using the domestic rate in each individual jurisdiction.

Example

  • In 19X2, an entity has accounting profit in its own jurisdiction (country A) of Rs. 1,500 (19X1: Rs. 2,000) and in country B of Rs. 1,500 (19X1: Rs. 500). The tax rate is 30% in country A and 20% in country B. In country A, expenses of Rs. 100 (19X1: Rs. 200) are not deductible for tax purposes.
  • The following is an example of a reconciliation to the domestic tax rate.
Domestic Tax Rate
  • It would often be impracticable to compute the amount of unrecognised deferred tax liabilities arising from investments in subsidiaries, branches and associates and interests in joint arrangements (see paragraph 39).
  • Therefore, this Standard requires an entity to disclose the aggregate amount of the underlying temporary differences but does not require disclosure of the deferred tax liabilities. Nevertheless, where practicable, entities are encouraged to disclose the amounts of the unrecognised deferred tax liabilities because financial statement users may find such information useful
  • It would sometimes not be practicable to compute the total amount of the potential income tax consequences that would result from the payment of dividends to shareholders. This may be the case, for example, where an entity has a large number of foreign subsidiaries.
  • However, even in such circumstances, some portions of the total amount may be easily determinable.
  • For example, in a consolidated group, a parent and some of its subsidiaries may have paid income taxes at a higher rate on undistributed profits and be aware of the amount that would be refunded on the payment of future dividends to shareholders from consolidated retained earnings. In this case, that refundable amount is disclosed. If applicable, the entity also discloses that there are additional potential income tax consequences not practicably determinable. In the parent’s separate financial statements, if any, the disclosure of the potential income tax consequences relates to the parent’s retained earnings.
  • An entity discloses any tax-related contingent liabilities and contingent assets in accordance with Ind AS 37, Provisions, Contingent Liabilities and Contingent Assets. Contingent liabilities and contingent assets may arise, for example, from unresolved disputes with the taxation authorities. Similarly, where changes in tax rates or tax laws are enacted or announced after the reporting period, an entity discloses any significant effect of those changes on its current and deferred tax assets and liabilities (see Ind AS 10, Events after the Reporting Period).

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