Accounting-for-company-income-taxPPT课件.ppt

Accounting for company income taxAccounting income vs tax treatmentsAccounting profit does not equal taxable profitDifference caused by different“rules”used for accounting vs tax purposes ACCOUNTINGTAXBasis of accountingEquationsAccruals basisPrincipally cash basisRevenue Expenses=Accounting profitTaxable income(TI)tax deductions(TD)=Taxable profitAASBs and the Corporations Act are key sources that determine the appropriate accounting treatment of transactions The Income Tax Assessment Act determines the tax treatment of transactions Some exceptions to this Accounting income vs tax treatmentsITEMACCOUNTINGTAXPassive revenue received in arrearsDepreciation(accelerated for tax)R&D costsPrepaid expensesRecognised as revenue,with corresponding asset(receivable)when earnedRecognised as TI when cash receivedRecognised as expense based on useful life of assetRecognised as TD based on predetermined ratesCapitalised and amortised Recognised as TD when paidRecorded as an asset and expensed as incurredRecognised as TD when paidRent,interest,royalties etcCommon for assets to be depreciated over a shorter life for tax purposes than for accounting purposesAccounting income vs tax treatmentsITEMACCOUNTINGTAXPassive revenue received in advanceDepreciation(accelerated for acctg)Bad/doubtful debtsEmployee benefits eg annual leaveRecorded as liability.Recognised as revenue when earned.Recognised as TI when cash receivedRecognised as expense based on useful life of assetRecognised as TD based on predetermined ratesAllowance raised and expense recorded when debt considered doubtfulRecognised as a TD when debt physically written offLiability raised and expense recorded when debt owing to employeeRecognised as TD when payment made to employeePossible for accounting useful life to be shorter than tax useful lifeProvisions(eg for warranties)are treated in the same way as employee benefitsAccounting for income taxes general principlesThe tax consequences of transactions that occur for accounting purposes during a period should be recognised as income or expense during the current period,regardless of when the tax effects will occurThis requires identifying the current and future tax consequences of items recognised in the balance sheetTwo separate calculations are performed each year:1.current tax liability 2.movements in deferred tax balancesCalculation of current tax liabilityAccounting profit/(loss)-acctg revenue not assessable for tax+acctg expenses not deductible for tax+/(-)differences between acctg revenue and TI+/(-)differences between acctg expenses and TDs=Taxable profitx tax rate%=Current tax liability(CTL)Calculation of current tax liability-exampleProfit before tax for ABC Ltd for the year to 30 June 2012 is as follows:Sales1,000Interest revenue40Government grant 80COGS(450)Depreciation(50)Goodwill impairment(20)Bad debts(30)Annual leave(10)Other expenses(260)PBT300$60 allowed as a tax deduction for plant.Interest has not yet been received.Bad debts of$20 were written off during the year.Payments of$30 were made to employees in relation to annual leave taken during the year.The tax rate is 30%Required:Calculate the current tax liability of ABC Ltd for 2012 Calculation of current tax-exampleAccounting profit before taxTaxable profitCurrent tax liability(CTL)(30%)300Government grant (80)Goodwill impairment 20Interest not yet received (40)Adjustment for plant depreciation (10)Adjustment for bad debt write-offs 10 Adjustment for annual leave paid (20)18054exempt incomenot deductibleAcctg depn 50Tax depn (60)Adj req (10)B/debts expense-acctg 30B/debts w/off-tax (20)Adj req 10 A/L expense-acctg 10Paid-tax (30)Adj req (20)Recording current tax liabilityIn the previous example the CTL would be recorded as:DrIncome tax expense(current)54CrCurrent tax liability 54Deferred tax liabilities and assetsArise when the period in which revenue and expenses are recognised for accounting is different from the period in which items are recognised for taxArise principally due to the accruals vs cash basis of recognising transactions.Differences either result in:1.The company paying more tax in the futureTaxable temporary differences(TTDs)Result in deferred tax liabilities(DTLs)2.The company paying less tax in the future Deductible temporary differences(DTDs)Result in deferred tax assets(DTAs)Calculation of deferred taxThe existence of temporary differences results in the carrying amounts of an entitys assets and liabilities being different from the amounts that would arise if a balance sheet was prepared for tax authoritiesCarrying amount(CA)-Tax base(TB)-asset and liability balances that would appear in a“tax balance sheet”.Temporary differences are calculated as follows:asset and liability balances(net of accumulated depreciation,allowances etc)based on accounting balance sheet.CA TB=TTD/(DTD)Calculating the tax baseCalculating the tax base for an assetCA future taxable amounts+future deductible amounts=TBCalculating the tax base for a liabilityCA+future taxable amounts-future deductible amounts=TBCalculating the tax base-examplesCAFTAFDATBPrepayment:$3,000Interest receivable:$1,000Plant:cost$10,000,acctg a/depn$4,600,tax a/depn$6,500Trade receivables:$52,000Allowance for b/debts:$2,000Trade payables:$30,000Annual leave liability:$3,9003,000 -3,000 +-=-1,000 -1,000 +-=-5,400 -5,400 +3,500 =3,50050,000-+2,000 =52,00030,000+-=30,0003,900 +-3,900 =-Calculating the tax base examplesNotes to worksheet:Prepayments-deductible when paid for tax purposes-therefore no balance would appear as an asset in the“tax”balance sheet.Interest receivable-assessable when received-therefore no balance would appear as a receivable asset in the“tax”balance sheet.Plant-WDV for tax purposes=$10,000-$6,500=$3,500.Trade receivables-bad debts not deductible for tax until physically written off-therefore the gross trade receivables amount would appear in the“tax”balance sheet.Payables-no differences in the treatment of trade payables for tax and accounting purposes-therefore CA=TB.Annual leave liability-deductible when paid for tax purposes-therefore no balance would appear as a liability in the“tax”balance sheet.Excluded taxable temporary differencesCertain temporary differences are excluded from being recognised.AASB 112 prohibits temporary differences from being recognised in relation to:GoodwillThe initial recognition of assets and liabilities that do not arise from a business combination.Providing certain recognition criteria are met,deductible temporary differences arising from tax losses can lead to the recognition of DTAs.Recognition of DTLs and DTAsDeferred tax liabilitiesDeferred tax liabilities must be recognised in full Deferred tax assetsDeferred tax assets relating to temporary differences and tax losses are recognised only if:there are sufficient taxable temporary differences for the entity to use against the deductible temporary differences;OR if it is probable that the entity will have sufficient future taxable profit(against which the tax benefit can be offset)Deferred tax assets and liabilitiesCalculating a deferred tax asset(DTA)DTD x tax rate%=DTACalculating a deferred tax liability(DTL)TTD x tax rate%=DTLRecording a DTA/DTL DrDeferred tax asset Dr/Cr Income tax expense Cr Deferred tax liabilityThe tax rate%is that which is expected to apply when the asset will be realised or the liability settledBALANCING ITEMCalculation of deferred taxexampleThe balance sheet of ABC Ltd at 30 June 2012 is as follows:AssetsLiabilitiesCash260Trade payables296Trade receivables300Loan485Allowance for b/debts(30)270A/L liability15Interest receivable40Deferred tax liability9Inventory100805Plant500EquityAccum depn(300)200Share capital700Goodwill800R/earnings175Deferred tax asset108751,680Calculation of deferred taxexampleThe balances in the deferred tax asset and liability accounts are the carried forward closing balances from the prior yearAccumulated depreciation of plant for tax purposes is$360Required:Complete the deferred tax worksheet on the following page and prepare the journal to record deferred tax movements for the 30 June 2012 year.Calculation of deferred taxexampleRelevant assets&liabilitiesCAFTAFDATBTTDDTDTrade receivablesInterest receivablePlantGoodwillA/L liabilityTotal temporary differencesLess:excluded differencesTemporary differencesDTL/DTA(30%)Less:opening balancesAdjustment270-30 300 3040 40 -40200 200 140 140 60800 800-80015-15 -15900 45(800)-100 45 30 139 1021 3Calculation of deferred taxexampleNotes to worksheet:1.Items where the CA=TB have been omitted from worksheet(eg cash,payables,loan)2.AASB 112 does not permit the recognition of a DTL relating to goodwill.The TTD arising is referred to as an“excluded”temporary difference3.Negative figures in the adjustment section would denote decreases in the DTA/DTL balances during the yearCalculation of deferred tax exampleEntry to record deferred tax movement:Dr Deferred tax asset3Dr Income tax expense18CrDeferred tax liability 21Summary:Current tax liability(slide 11)Deferred tax movementTotal income tax expense541872BALANCEOffsetting tax assets and liabilitiesBoth current and deferred tax assets and liabilities are to be offset against each other and a net figure shown in the balance sheet position for:Current taxDeferred taxChange in tax ratesWhen a new tax rate is enacted,that new rate should be applied:when calculating current tax liability when calculating adjustments to deferred tax accountsto carried forward deferred tax balances from previous yearsTax LossesTax losses are created when allowable deductions exceed assessable incomeThe tax act allows losses to be carried forward and used as a deduction against future taxable incomeTax losses provide future deductions and(subject to recognition criteria)create deferred tax assetsExempt income cannot contribute to carry forward lossesIf prima facie tax loss is$(10 000)but there is exempt income of$2 000 the allowable carry forward loss would be$(8 000)Tax LossesRecoupment occurs as soon as the company earns a taxable incomeTax loss recouped is recorded in the determination of taxable income and a journal entry raised to reverse the DTAIf a prior years loss carried forward is being recouped and there is exempt income in the year of recoupment,the exempt income must first be offset against the lossDisclosureTax assets&liabilities must be classified as current or non-current on the face of the statement of financial positionCurrent and deferred tax assets and liabilities can be offset in most casesTax expense on the statement of profit or loss and other comprehensive incomePayment of income tax Company income tax is paid under the PAYG(pay as you go)system in quarterly instalmentsCompanies must lodge quarterly business activity statements(BAS)and pay tax calculated as:Instalment income x instalment rate(supplied annually by the taxation department)Current tax liability represents the last quarterly payment and any adjustments necessary to reflect the fact that annual taxable income may differ from the sum of the quarterly returns