Topic%207%20Accounting%20for%20Income%20Taxes_4page_persheet

Topic%207%20Accounting%20for%20Income%20Taxes_4page_persheet...

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1 ACCT 2542 – Corporate Financial Reporting and Analysis Lecture Topic 7 Accounting for Income Tax Presented by: Dr Sarowar Hossain Accounting for Income Tax Getting Started But! Before we start ….a few points: Revision - Kieso et al Chapter 3 (WebCT) 2 Accounting Standards Keep Up to Date ….use consultation (though no e-mail consultation) Lots of Examples in Lectures Accounting for Income Tax Getting Started Readings Picker et al, Chapter 8 3 Other Reference AASB 112 - Income Taxes Accounting for Income Tax Getting Started Objective To gain a broad understanding of accounting for income taxes in Australia 4 Terminology Accounting profit and tax profit (taxable income) Carrying amount and tax base Permanent differences and temporary differences Current and deferred income tax
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2 Accounting for Income Tax Getting Started The Accounting Accounting for current and deferred income tax expense 5 Accounting for deferred tax assets and deferred tax liabilities Accounting for tax losses Accounting for changes in taxation rates Disclosure requirements Accounting for Income Tax Background Income Tax Law Income tax is levied on companies in accordance with the Income Tax Assessment Act (ITAA) 6 Companies typically “self assess” their income tax obligations and send in annual tax returns to the Australian Taxation Office (ATO) The “rules” for assessing taxation in Australia are complex Income tax may be assessed and paid on a consolidated group basis Accounting for Income Tax Background Income Tax Law Tax on taxable income = Tax rate x Taxable income 7 Taxable income = Assessable income – Deductions Assessable income = Ordinary + Statutory Deductions = General + Specific Exempt income Tax offsets = tax credits + tax rebates Accounting for Income Tax Background Taxation laws and accounting rules differ Profit before income tax (PBIT) = Revenues – Expenses 8 Profit before income tax (PBIT) Revenues Expenses Prima facie income tax = Tax rate x PBIT Hence we need an accounting standard to reconcile from prima facie income tax to tax on taxable income
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3 Accounting for Income Tax Background Accounting Standard History AASB 1020 (1989) “tax effect accounting” using income 9 statement reconciliation AASB 1020 (1999) balance sheet approach AASB 112 (2004) the Australian equivalent to the International Standard, IAS 12. Accounting for Income Tax AASB 112 Principle Issue Accounting for the current and future tax consequences of: 10 The future recovery (settlement) of the carrying amount of assets (liabilities) that are recognised in the entities’ balance sheet; and Transactions and other events of the current period that are recognised in an entity’s financial report Accounting for Income Tax AASB 112 Philosophy Tax consequences of all transactions or events of the current period shall be brought to account
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This note was uploaded on 09/14/2011 for the course ACCT 1001 taught by Professor John during the Spring '11 term at Renmin University of China.

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Topic%207%20Accounting%20for%20Income%20Taxes_4page_persheet...

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