Professional Documents
Culture Documents
IND AS 12 - Bhavik Chokshi - FR Shield
IND AS 12 - Bhavik Chokshi - FR Shield
(II) Differences
Temporary
(Eg : Depreciation, Other than
43B items) temporary
Eg : Donation to
Deductible Temporary unregistered Trust
Taxable Temporary
Difference Difference
18 CA BHAVIK CHOKSHI
IND AS 12 : INCOME TAXES
RECOGNITION OF TAX
t this stage, we need to identify Deferred Tax Asset or Deferred Tax Liability. As a
A
general rule, if the carrying value of an underlying asset is greater than the
tax base, the deferred tax item would be opposite. i.e., an underlying asset
will create a Deferred Tax Liability.
f the carrying value of an underlying item is less than the tax base, the
I
deferred tax item would also be the same i.e. An underlying asset will create
a deferred tax asset.
Particulars Underlying Asset Underlying Liability
Carrying value > Tax Base D.T.L D.T.A
[Eg : P.P.E] [Eg : 43 B items]
Carrying Value < Tax Base D.T.A D.T.L
[Eg : Preliminary Expenses] [Eg : Loan with Processing Fees]
Carrying Value = Tax Base No Deferred Tax
Offsetting Principles
DTA and DTL be netted off in the Balance Sheet in case the underlying items are allowed
to be off settled while calculating tax. Example: DTA under U.S tax laws cannot be off-
setted against DTL under Indian Tax Laws.
(Refer Q. 1, 2)
CA BHAVIK CHOKSHI 19
IND AS 12 : INCOME TAXES
In the last case, no enactment / substantial enactment was done till the Balance
Sheet Date and hence Old Rate is taken.
3. In case different natures of income are taxable at different tax rates, then we
should take the tax rate based on the entity’s intention to utilize the asset.
Example: A capital gain rate of 20% should be applied in case an entity intends
to sell the asset and a tax rate of 30% (depreciation) would be applied in case
the entity intends to use the asset.
4. Changes in Tax Rate
In case the tax rate subsequently changes, then the entity will have to reassess
its tax liabilities based on the revised tax rates and the difference if any would
be adjusted as deferred tax expense / income and taken to the P/L or O.C.I
depending on how the deferred tax on the underlying item is accounted.
(Refer Q. 3)
20 CA BHAVIK CHOKSHI
IND AS 12 : INCOME TAXES
ON CARRY
ON NET ASSSETS FORWARD LOSSES
CA BHAVIK CHOKSHI 21
IND AS 12 : INCOME TAXES
Note 1
In case tax base of acquiree is available, we take that, else the book values (old
carrying values) can be assumed to be the tax base.
Note 2
DTA / DTL will be calculated based on the tax rates applicable to the acquiree
(subsidiary)
Note 3
Deferred Tax on Goodwill
Generally, goodwill is not tax deductible and hence we will not need to create
deferred tax. IND AS 12 additionally provides an exception in the creation of deferred
tax liability on goodwill as it will give rise to a circular reference. For example: in
question 12, if Deferred Tax is calculated on goodwill of 22.5, it will be recorded
as a part of the acquisition entry, which inturn will change the goodwill and hence
we might need to again calculate deferred tax and the calculations will happen in a
circular manner.
Note 4
In case of Business Combination, differences between Individual Net Assets are
assumed to be temporary unless given otherwise.
Exception to DTL
Conditions:
1. Dividend Distribution in Entity’s Control
2. No dividend expected in Foreseeable Future
Subsidary Associate
22 CA BHAVIK CHOKSHI
IND AS 12 : INCOME TAXES
Tax Base
The deduction under Income Tax will be based on intrinsic
value on the date of exercise. However, the accounting for
deferred tax needs to be done based on the years before
exercise. Hence, the intrinsic value for the purpose of tax 02
base calculation should be based on the actual intrinsic
value based on the end of each year. Further, the tax base
should be recorded pro rata based on the vesting period
served till date ÷ total vesting period.
CA BHAVIK CHOKSHI 23
IND AS 12 : INCOME TAXES
(Refer Q. 20)
24 CA BHAVIK CHOKSHI