Deferred Tax.ppt - TOPIC 5 DEFERRED TAX(MFRS 112 MALAYSIAN...

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TOPIC 5 DEFERRED TAX (MFRS 112)
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MALAYSIAN TAX SYSTEM Tax paid in year profits are earned Tax losses can be c/f and offset against future profits Each year – estimate tax payable and make periodic payment Sixth and ninth month – recomputed End of year – paid to IRB Following year – recalculated tax payable if amount paid < final amount – tax liability (CL) If amount paid > final amount – tax recoverable (CA)
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INTRODUCTION Accounting profit Definition - is profit or loss for a period before deducting tax expense P/L is excess of revenues less expenses for the period Such revenue and expense are determined and recognised according to accounting standards and CF
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CONT.. Taxable profit Definition- the profit for the period, determined in accordance with the rules established by the taxation authorities, upon which income taxes are payable It is an excess of taxable income over taxation deductions allowable against that income
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CONT… Due to different rules and principles – acctg profit and taxable profit differ Accounting profit ≠ taxable profit Tax expense in SOCI ≠ tax payable The differences arise from a number of common transactions and may be permanent or temporary in nature Tax expense include tax payable and tax deferred (postponed for payment to later date)
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PERMANENT DIFFERENCES Arise when treatment of a transaction is recognised as part of acctg profit but never recognised as part of taxable profit (or vise versa) Permanent differences ignored for deferred tax acctg (e.g. donations to unapproved charities, penalties, fines) but required for disclosure
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CONT… Not allowed for tax purpose but incurred by entity Examples of permanent items: a) Donations to unapproved charities b) Entertainment expenses c) Penalties and fines d) Dismantling and decommissioning costs
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TEMPORARY DIFFERENCES Arise when the period for recognising
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