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    07 IAS 12 Basic - Handout 4 Case Study 2 Solution

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    Shane Marie Arguillon

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    07 IAS 12 Basic - Handout 4 Case Study 2 Solution

    Uploaded by

    Shane Marie Arguillon
    3 views2 pages

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    07 IAS 12 Basic - Handout 4 Case study 2 solution

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    3 views2 pages

    07 IAS 12 Basic - Handout 4 Case Study 2 Solution

    Uploaded by

    Shane Marie Arguillon

    Copyright:

    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    of 2

    Handout 4

    ABCD IAS 12 – Income Taxes


    Basic Baseline

    Handout 4: Solution to case study 2

    Temporary differences

    The cost of the item of plant is tax deductible on a reducing balance basis. The carrying
    amount, tax base, temporary difference and deferred tax can be calculated as follows:

    Carrying amount Tax base @ 50% Temporary


    difference
    (A) (B)
    (A) – (B)

    1 January 2006 1,000 1,000 -

    Depreciation / tax amortisation (200) (500)

    31 December 2006 800 500 300

    Depreciation / tax amortisation (200) (250)

    31 December 2007 600 250 350

    Depreciation / tax amortisation (200) (125)

    31 December 2008 400 125 275

    Depreciation / tax amortisation (200) (63)

    31 December 2009 200 62 138

    Depreciation / tax amortisation (200) (62)

    31 December 2010 - - -

    As fines are not deductible for tax purposes, the tax base of the provision for expected litigation
    equals its carrying amount and so there is no temporary difference and no deferred tax.

    Tax rate

    In accordance with IAS 12.47 deferred tax assets and liabilities should 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.

    © 2009 KPMG International. KPMG International is a Swiss cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG
    International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member
    firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

    1
    Handout 4
    ABCD IAS 12 – Income Taxes
    Basic Baseline

    At this end of the reporting period, new tax rates have been enacted which differ for the period
    2007-2008 and for the period beginning in 2009. An estimate should be made of the date when
    the deferred tax liability will be settled, as the rate to be used for the deferred tax calculation
    should be the one applicable in the relevant period.

    The tax rate that is expected to be adopted by the Government for 2010 and thereafter cannot be
    used for the deferred tax measurement as this rate is neither enacted nor substantively enacted
    as of 31 December 2007.

    Deferred tax liability calculation

    The deferred tax liability calculation as at 31 December 2007 is as follows:

    Temporary difference at Reversal of temporary Applicable Deferred tax


    the beginning of the year difference during the year tax rate liability
    Year

    2008 350 75 36% 27

    2009 275 137 34% 47

    2010 138 138 34% 47

    TOTAL 121

    © 2009 KPMG International. KPMG International is a Swiss cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG
    International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member
    firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

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