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# IFRS Calculation of the tax base of the asset and liability

## IFRS Calculation of the tax base of the asset and liability

IFRS Calculation of the tax base of the asset and liability: Current tax  Current tax for the current and prior periods is recognised as a liability to the extent that it has not yet been settled, and as an asset to the extent that the amounts already paid exceed the amount due.  The benefit of a tax loss which can be carried back to recover current tax of a prior period is recognised as an asset.

Current tax assets and liabilities are measured at the amount expected to be paid to (recovered from) taxation authorities, using the rates/laws that have been enacted or substantively enacted by the balance sheet date.

Calculation of deferred taxes  Formulae  Deferred tax assets and deferred tax liabilities can be calculated using the following formulae:

Temporary difference = Carrying amount – Tax base Deferred tax asset or liability = Temporary difference x Tax rate The following formula can be used in the calculation of deferred taxes arising from unused tax losses or unused tax credits:  Deferred tax asset = Unused tax loss or unused tax credits x Tax rate

IFRS Calculation of the tax base of the asset and liability

IFRS Calculation of the tax base of the asset and liability:

IFRS Calculation of the tax base of the asset and liability: Deferred tax liabilities shall be recognised for all taxable temporary differences, subject to some stipulated exceptions. A deferred tax liability shall be recognised when there is a taxable temporary difference between the tax base of an asset or liability and its corresponding carrying amount in the statement of financial position.

IFRS Calculation of the tax base of the asset and liability

Current tax and deferred tax shall be recognised outside profit or loss if the tax relates to items that are recognised, in the same or a different period, outside profit or loss. Therefore, current tax and deferred tax that relates to items that are recognised, in the same or a different period:

• in other comprehensive income, shall be recognised in other comprehensive income.
• directly in equity, shall be recognised directly in equity.

International Financial Reporting Standards require or permit particular items to be recognised in other comprehensive income. Examples of such items are:

• a change in carrying amount arising from the revaluation of property, plant and equipment.
• exchange differences arising on the translation of the financial statements of a foreign operation.

IFRS Calculation of the tax base of the asset and liability

International Financial Reporting Standards require or permit particular items to be credited or charged directly to equity. Examples of such items are:

• an adjustment to the opening balance of retained earnings resulting from either a change in accounting policy that is applied retrospectively or the correction of an error (see IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors).
• amounts arising on initial recognition of the equity component of a compound financial instrument.

IFRS Calculation of the tax base of the asset and liability: Recognition of current tax liabilities and current tax assets

Current tax for current and prior periods shall, to the extent unpaid, be recognised as a liability. If the amount already paid in respect of current and prior periods exceeds the amount due for those periods, the excess shall be recognised as an asset.

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.

When a tax loss is used to recover current tax of a previous period, an entity recognises the benefit as an asset in the period in which the tax loss occurs because it is probable that the benefit will flow to the entity and the benefit can be reliably measured.

IFRS Calculation of the tax base of the asset and liability

Recognition of deferred tax liabilities and deferred tax assets

A deferred tax liability shall be recognised for all taxable temporary differences, except to the extent that the deferred tax liability arises from:

(a) the initial recognition of goodwill.

(b) the initial recognition of an asset or liability in a transaction which:

(i) is not a business combination.

(ii) at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss).

This arises when the carrying amount of an asset exceeds its tax base. Consequently, the future recovery of the carrying amount will generate taxable profit:

• accumulated depreciation of an asset in the financial statements is less than the cumulative depreciation allowed up to the reporting date for tax purposes, e.g. depreciation of an asset is accelerated for tax purposes.
• development costs have been capitalised and will be amortised over future periods in determining accounting profit but deducted in determining taxable profit in the period in which they were incurred.

IFRS Calculation of the tax base of the asset and liability

A taxable temporary difference also arises when the carrying amount of a liability is less than its tax base, because the future settlement of its tax base will generate taxable profit (e.g. a loan initially recognised at fair value net of borrowing costs incurred in the loan establishment but the tax deductions for the costs are amortised over the life of the loan). A deferred tax liability will not be recognised if arising from:

• the initial recognition of goodwill.
• the initial recognition of an asset or liability in a transaction which is not a business combination, and, at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss).

IFRS Calculation of the tax base of the asset and liability

Measurement of deferred tax assets and liabilities A deferred tax asset or liability shall be measured based on the enacted, or substantively enacted, tax rates (tax laws) expected to apply when the asset is realised or the liability is settled. The carrying amount of a deferred tax asset shall be reviewed at the end of each reporting period. An entity shall reduce the carrying amount of a deferred tax asset to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax asset to be utilised.

Any such reduction shall be reversed to the extent that it becomes probable that sufficient taxable profit will be available. Deferred tax assets and liabilities are not discounted. Recognition of current and deferred tax assets Current and deferred tax shall be recognised as income or an expense and included in profit or loss for the period, except to the extent that the tax arises from:

• a transaction or event which is recognised, in the same or a different period, outside profit or loss, either in other comprehensive income or directly in equity; or
• a business combination (other than the acquisition by an investment entity, as defined in IFRS 10 Consolidated Financial Statements, of a subsidiary that is required to be measured at fair value through profit or loss).

IFRS Calculation of the tax base of the asset and liability