 Deferred tax liabilities – Amounts of income
taxes payable in future periods i.r.o. taxable
temporary differences
 Deferred tax assets - Amounts of income
taxes recoverable in future periods i.r.o.:
◦ Deductible temporary differences;
◦ Carry forward of unused tax losses; and
◦ Carry forward of unused tax credits

Temporary differences – Differences between carrying
amount of asset or liability in SFP and its tax base:
• Taxable temporary differences – Will result in taxable
amounts in determining taxable profit (tax loss) of
future periods when carrying amount of asset or liability
is recovered or settled; or
• Deductible temporary differences - Will result in deductible
amounts in determining taxable profit (tax loss) of future
periods when carrying amount of asset or liability is recovered
or settled


Tax base – Value attributed to asset or liability for tax purposes
Tax base of an asset – Amount deductible for tax purposes
against taxable economic benefits that will flow to entity when it
recovers the asset. If not taxable – tax base = carrying amount
 Tax base of liability – Carrying amount, less
amount deductible for tax iro that liability in
future periods. Revenue received in advance – tax
base of liability is the carrying amount, less any
amount not taxable in future periods
 Carrying amount – asset or liability in accounting
records
 Permanent differences : Differences between
taxable and accounting profit that originate in
the current period and will never reverse
 Current versus deferred
◦ Two main components to disclose
 Current tax
 Deferred tax
 Current tax – Present tax charge > Calculated
on current period TP’s – Tax Act
 Deferred tax – Accrual of taxes
 Debit balance – Deferred tax account
Debit
Deferred tax (SFP)
Income tax expense : (P/L)
Credit
XXX
XXX
Creating a deferred tax asset for future tax relief
 Credit balance – Deferred tax account
Debit
Income tax expense : (P/L)
Deferred tax liability (SFP)
Creating a deferred tax liability for future tax owing
Credit
XXX
XXX
 Current tax payable – Amount currently
owing to or by SARS – Asset or liability
 Deferred tax – Amount accountant estimates
owing to or by SARS > in the long-term >
Accrual concept > Non- current asset or
liability
Deferred tax asset
 Estimated current tax, SARS, 20x1, R30 000
 Estimated current tax, Accountant, 20x1, R24 000
 R6 000 deferred
_____Income Tax (E)
SARS:IT
30 000
_____
30 000
DT
P/L
_____Deferred Tax (A)_
Tax
6 000
24 000
_30 000
____
6 000
_________SARS: Income tax (L)________
Tax
30 000
Entity name
Statement of Profit or Loss and Other Comprehensive Income
For the year ended … 20x1_____________
______________________________
Note
20x1
R
Profit before taxation
xxx
Income tax expense
(30 000 – 6 000)
3
(24 000)
Profit for the year
xxx
Other comprehensive income
0
Total Comprehensive income
xxx
Entity Name
Statement of Financial Position
As at ….. 20x1________________________________________________________________
20x1
ASSET
R
Non-Current assets
- Deferred tax: Income tax
6 000
Entity Name
Notes to the financial statements
For the year ended 20x1_________________________________________________
3. Income tax expense
•
-
Income tax
-
Current
-
Deferred
20x1
R
24 000
30 000
(6 000)
Deferred tax asset reversed
 Estimated current tax, SARS, 20x1, R30 000
 Estimated current tax, Accountant, 20x1, R24 000
 R6 000 deferred
 Tax charge, SARS, 20x2, R42 000
 Tax charge, Accountant, 20x2, R48 000
_____Income Tax(E)_
20x2 SARS: IT
DT
_
42 000
6 000
48 000
_____Deferred Tax (A)_____
Balance b/d
6 000
Tax
_____ SARS : Income tax (L)
20x2 Tax
6 000
_
42 000
Entity name
Statement of Profit or Loss and Other Comprehensive Income
For the year ended … 20x2_____________
______________________________
Note
20x2
20x1
R
R
Profit before taxation
xxx
xxx
Income tax expense
(42 000 + 6 000)
3
(48 000)
(24 000)
Profit for the year
xxx
xxx
Other comprehensive income
_______0
0
Total Comprehensive income
______xxx
xxx
Entity Name
Statement of Financial Position
As at ….. 20x1________________________________________________________________
Note
20x2
20x1
ASSETS
R
R
Non-Current assets
- Deferred tax: Income Tax
0
6 000
Entity Name
Notes to the financial statements
For the year ended 20x2_________________________________________________
20x2
R
20x1
R
Income tax
48 000
24 000
-
Current
-
Deferred
42 000
6 000
30 000
(6 000)
3. Income tax expense
•
-
Creating a deferred tax liability
 Tax charge, SARS, 20x1, R15 000
 Estimated current tax, Accountant, 20x1, R22 000
 Deferred tax R7000
_____Income Tax (E)
20x1 SARS: NT
DT
15 000
7 000
22 000
P/L
__
22 000
22 000
_____Deferred Tax (L)_______
20x1 Tax
7 000
______SARS: Income tax (L)_ ___
20x1 Tax
15 000
Entity name
Statement of Profit or Loss and Other Comprehensive Income
For the year ended … 20x1_____________
______________________________
Note
20x1
R
Profit before taxation
xxx
Income tax expense
(15 000 + 7 000)
3
(22 000)
Profit for the year
xxx
Other comprehensive income
0
Total Comprehensive income
xxx
Entity Name
Statement of Financial Position
As at ….. 20x1________________________________________________________________
20x1
LIABILITIES
R
Non-Current liabilities
- Deferred tax: Income tax
7 000
Entity Name
Notes to the financial statements
For the year ended ……. 20x1_________________________________________________
3. Income tax expense
•
-
20x1
R
Income tax
22 000
-
Current
-
Deferred
15 000
7 000
Deferred tax liability reversed
 Estimated current tax, SARS, 20x1, R15 000
 Estimated current tax, Accountant, 20x1, R22 000
 Deferred tax liability, R7 000
 Tax charge, SARS, 20x2, R19 000
 Tax charge, Accountant, 20x2, R12 000
_____Income Tax (E)__
20x2 SARS: IT
19 000
20x2
DT
P&L
19 000
7 000
12 000
19 000
_____Deferred Tax (L)____ __
20x2
Tax
7 000
Balance b/d
7 000
______SARS: Income tax (L)_____
20x2 Tax
19 000
Entity name
Statement of Profit or Loss and Other Comprehensive Income
For the year ended … 20x2_____________
______________________________
Note
20x2
20x1
R
R
Profit before taxation
xxx
xxx
Income tax expense
3
(12 000)
(22 000)
Profit for the year
xxx
xxx
Other comprehensive income
_______0
0
Total Comprehensive income
_____xxx
xxx
Entity Name
Statement of Financial Position
As at ….. 20x1________________________________________________________________
Note
20x2
20x1
LIABILITIES
R
R
Non-Current liabilities
- Deferred tax: Income Tax
0
7 000
Entity Name
Notes to the financial statements
For the year ended ……. 20x2_________________________________________________
20x2
R
20x1
R
Income tax
12 000
22 000
-
Current
-
Deferred
19 000
(7 000)
15 000
7 000
3. Income tax expense
•
-

Two methods

Previously – IAS 12 – IS method – measured as difference between:
◦ IS approach (Not used)
◦ BS approach
◦
◦

Accounting profits, and
Taxable profits
Currently -IAS 12 – BS method – measured as difference between:
◦
◦
Carrying amount of entity’s assets and liabilities, and
Tax base of entity’s assets and liabilities

Method does NOT alter final amount, IS method used as:

IAS 12.53 expressly prohibits discounting of deferred tax
◦ Tool to check balance sheet calculations if asked to calculate both current tax and
deferred tax, and
◦ It will help understand the logic behind deferred tax
Income statement approach (Timing differences)
C
Profit before tax
Add/Less: Permanent differences
Less: Exempt income
Add: Non-deductible expenses
Accounting profits taxable
Add/Less: Temporary differences
Add: Income received in advance (Closing)
Less: Income received in advance (Opening)
Less: Prepaid expenses (Closing)
Add: Prepaid expenses (Opening)
Add: Depreciation
Less: Tax allowances
Add: Provisions (Closing)
Less: Provisions (Opening)
Taxable profit
Current normal tax at 27%
xxx
xxx
xxx
(xxx)
__________
xxx
xxx
xxx
(xxx)
(xxx)
xxx
xxx
(xxx)
xxx
(xxx)
xxx
xx
Deferred tax
Expense
Income
The balance sheet approach
 First calculate deferred tax balances and
 Then the deferred tax adjustment
Calculation
 Carrying amount of assets and liabilities compared with tax bases
of assets and liabilities
 Difference – Temporary difference
Tax bases in IAS 12:
 Tax base of asset: Amount deductible for tax purposes against taxable
economic benefits that will flow to entity when it recovers the asset. If not
taxable – tax base = carrying amount
 Tax base of liability: Carrying amount, less amount deductible for tax iro
that liability in future periods. Tax base of liability is the carrying amount, less
any amount not taxable in future periods



Deferred tax balance in SPF – total temporary
differences x tax rate
Deferred tax journal – Difference between opening and
closing balance
Format suggested:
Carrying Tax base
Temporary Deferred
amount (per IAS 12) difference
(SFP)
(b) – (a)
(a)
(b)
(c)
Opening balance:
tax
(c) x 27%
(d)
Deferred tax
balance/
adjustment
Asset/Liability
Movement: Deferred tax _________________________________________________________________ TE in SCI
Closing balance: _______________________________________________ Asset/Liability
Income received in advance (BS approach)
 Rent received, R10 000, 20x1 for 20x2
 Rent received for 20x2, R110 000
 SARS taxes on earlier of receipt or earned
 Calculation
Rent received
In Advance
Carrying
Tax base
Temporary Deferred
Deferred tax
amount
(SFP)
(a)
(per IAS 12)
difference
(b) – (a)
(c)
balance/
adjustment
(b)
tax
(c) x 27%
(d)
Opening balance: 20x1
0
0
0
0
Deferred tax adj. 20x1
(10 000)
0
10 000
2 700
Dr DT – Cr TE
Closing balance : 20x1
(10 000)
0
10 000
2 700
Asset
Deferred tax adj. 20x2
10 000
0
(10 000)
(2 700)
Cr DT – Dr TE
Closing balance: 20x2
0
0
0
0
 Journals
20x1
Income tax (P/L)
SARS: Income tax (SFP)
Current tax payable for 20x1___
___________
Deferred tax : Income tax (SFP)
Income tax (P/L)
Deferred tax adjustment____________________
20x2
Income tax (P/L) (110 000 x 27%)
SARS: Income tax (SFP)
Current tax payable for 20x2___
__________
Income tax (P/L)
Deferred tax : Income tax (SFP)
Deferred tax adjustment____________________
Debit
2 700
Credit
2 700
2 700
2 700
29 700
29 700
2 700
2 700
Entity name
Statement of Profit or Loss and Other Comprehensive Income
For the year ended … 20x2_____________
Profit before taxation
Income tax expense
Profit for the year
Other comprehensive income
Total Comprehensive income
_________________________
Note
20x2
R
120 000
15
(32 400)
87 600
_______ 0
___87 600_
_____
20x1
R
0
(0)
0
0
0
Entity Name
Statement of Financial Position
As at ….. 20x2___________________________________________________________
Note
20x2
ASSETS
R
Non-Current Assets
Deferred tax: Income tax
6
0
LIABILITIES
Current liabilities
- SARS: Income tax
- Income received in advance
29 700
0
_____
20x1
R
2 700
2 700
10 000
Entity Name
Notes to the financial statements
For the year ended 31 December 20x2__________________________________________
20x2
R
20x1
R
_____0
2 700
Income tax
32 400
0
-
Current
-
Deferred
29 700
2 700
2 700
(2 700)
6. Deferred tax asset
The closing balance constituted by the effects of:
Year end accruals
•
15. Income tax expense
•
-
______________________
Tax expense per SPLOCI
32 400
0
 Five potential balances in accrual system:
◦ Income received in advance; (Example 7)
◦ Expenses prepaid;
◦ Expenses payable;
◦ Provisions; and
◦ Income receivable.
 Example 8
◦ PBT – R20 000 in 20x1 and 20x2 before:
◦ R8 000 – Electricity for January 20x2, paid
December 20x1- Tax deductible
5A. Calculation of Deferred tax
Prepaid
Electricity
Opening balance: 20x1
Deferred tax adj. 20x1
Closing balance : 20x1
Deferred tax adj. 20x2
Closing balance: 20x2
Carrying
amount
(SFP)
(a)
Tax base
(per IAS 12)
0
8 000
8 000
(8 000)
0
0
0
0
0
0
(b)
Temporary
Deferred
difference
tax
(b) – (a)
(c) x 27%
(c)
(d)
0
(8 000)
(8 000)
8 000
0
0
(2 160)
(2 160)
2 160
0
Deferred tax
balance/
adjustment
Cr DT – Dr TE
Liability
Dr DT – Cr TE

Tax base rule for assets: Expenses prepaid (IAS 12):
Calculation of tax base (Expenses prepaid) 20x1
R
Carrying amount
8 000
Less: Amount not deducted in future for tax
(8 000)
Amount deducted from TP in future
0
20x2
R
0
0
0
 Calculation of current income tax
20x1
Profits Tax at
27%
20x2
Profits Tax at
27%
20 000
12 000
0
0
Taxable accounting profits and tax expense
20 000
12 000
Adjusted for movement in temporary differences
(8 000)
8 000
Profit before tax (Accounting profits)
Adjusted for exempt income & non-deductible expenses
Add: Expenses prepaid (Opening balance)
Less: Expenses prepaid (Closing balance)
0
8 000
(8 000)
0
_____________________________________________
Taxable profits and current normal tax
12 000
3 240
20 000
5 400
_____Income Tax(E)_
20x1 SARS: IT
DT
Total
3 240
2 160
5 400
_
20x1 Prepaid Exp 8 000
P/L
5 400
5 400
_____Deferred Tax (L)_____
20x1 Tax
___
Bank_________
2 160
SARS: Income tax (L)_
20x1 Tax
3 240
Prepaid Expenses
20x1 Bank
8 000
_____Income Tax(E)
20x2 SARS: IT
5 400
____
5 400
Bank_________
20x2 DT
2 160
P&L 3 240
5 400
_____Deferred Tax (L)_____
20x2 Tax
2 160
20x2 Bal. b/d
20x2 SARS:IT 3 240
Expenses prepaid___
2 160
20x2 Bal. b/d 8 000 20x2 E & W 8 000
___
Current tax payable: Income tax (L)_
20x2 Bank
3 240
20x2 Bal. b/d 3 240
Bal c/f
5 400
Tax
5 400
8 960
8 640
Bal b/b
5 400
_________Electricity and Water (E)___
20x2 Elec. Prepaid 8 000
Entity Name
Statement of Financial Position
As at 31 December 20x2_____________________________
Note
ASSETS
Current Assets
Expenses: Prepaid
__________ ___
20x2
20x1
R
R
0
8 000
0
2 160
5 400
3 240
LIABILITIES
Non-Current Liabilities
Deferred Tax : Income tax
Current liabilities
- SARS: Income tax
6
Entity name
Statement of Profit or Loss and Other Comprehensive Income
For the year ended 31 December 20x2_____________
Note
Profit before taxation
(20 000 – 8 000)
Income tax expense
Profit for the year
Other comprehensive income
Total Comprehensive income
15
______________________
20x2
20x1
R
R
12 000
20 000
(3 240)
(5 400)
8 760
14 600
_______0
0
___8 760
14 600
Entity Name
Notes to the financial statements
For the year ended 31 December 20x2__________________________________________
20x2
R
20x1
R
_____0
(2 160)
Income tax
3 240
5 400
-
Current
-
Deferred
5 400
(2 160)
3 240
2 160
6. Deferred tax asset/(liability)
The closing balance constituted by the effects of:
Year end accruals
•
15. Income tax expense
•
-
______________________
Tax expense per statement of comprehensive income
3 240
5 400
 Example 9
◦ PBT – R20 000 for 20x1 and 20x2 before:
◦ Telephone expense of R4 000 for 20x1 paid 20x2
9A. Calculation of Deferred tax
Accrued
Telephone
Opening balance: 20x1
Deferred tax adj. 20x1
Closing balance : 20x1
Deferred tax adj. 20x2
Closing balance: 20x2
Carrying
amount
(SFP)
(a)
0
(4 000)
(4 000)
4 000
0
Tax base
Temporary
(per IAS 12) difference
(b) – (a)
(b)
(c)
0
(4 000)
(4 000)
4 000
0
0
0
0
0
0
Deferred
tax
(c) x 27%
(d)
0
0
0
0
0
Deferred tax
balance/
adjustment
N/A
N/A
N/A
N/A
Calculation of tax base (Expenses payable) 20x1
R
Carrying amount
4 000
Less: Amount deducted in future for tax
0
20x2
R
4 000

Tax base rule for liabilities: Expenses payable (IAS 12):
◦ Tax base of a liability – Is the carrying amount less
amounts deductible for tax purposes in respect of that
liability in future periods.
0
0
0
 Calculation of current income tax
Profit before tax (Accounting profits)
20x1
Profits Tax at
27%
20x2
Profits Tax at
27%
16 000
20 000
0
0
(20 000 – 4 000) and (20 000 -0)
Adjusted for exempt income & non-deductible expenses
Taxable accounting profits and tax expense
Adjusted for movement in temporary differences
16 000
4 320
0
20 000
5 400
0
___________________________________________
Taxable profits and current normal tax
16 000
4 320
20 000
5 400
_____Income Tax (E)
__
Expenses Payable
20x1 SARS: IT
4 320
_____
Telephone (E)_____
20x1 Payables
___
20x1 Telephone 4 000
4 000
SARS: Income tax (L)
20x1 Tax
_
4 320
_____Income Tax (E)
20x2 SARS: IT
Bank_________
5 400
20x2 Exp. Payable 4 000
20x2 SARS:IT
4 320
Expenses Payable___
20x2 Bank 4 000
___
SARS: Income tax (L)
20x2 Bank
4 320
20x2 Bal. b/d
Tax
_
4 320
5 400
20x2 Bal. b/f 4 000
Entity Name
Statement of Financial Position
As at 31 December 20x2_____________________________
Note
__________ ___
20x2
20x1
R
R
LIABILITIES
Current liabilities
- Expenses Payable
- SARS: Income tax
0
5 400
4 000
4 320
Entity name
Statement of Profit or Loss and Other Comprehensive Income
For the year ended 31 December 20x2_____________
Note
Profit before taxation
20x1 (20 000 – 4 000)
Income tax expense
Profit for the year
Other comprehensive income
Total Comprehensive income
5
______________________
20x2
20x1
R
R
20 000
16 000
(5 400)
(4 320)
14 600
11 680
_______0
0
__14 600
11 680
Entity Name
Notes to the financial statements
For the year ended 31 December 20x2__________________________________________
20x2
R
20x1
R
Income tax
5 400
4 320
-
Current
-
Deferred
5 400
0
4 320
0
5. Income tax expense
•
-
______________________
Tax expense per statement of comprehensive income
5 400
4 320
 Example 10
◦ PBT – R20 000 for 20x1 and 20x2 before:
◦ Provision for warranty of R4 000 for 20x1 paid
20x2
10A Calculation of Deferred tax
Warranty
Provision
Opening balance: 20x1
Deferred tax adj. 20x1
Closing balance : 20x1
Deferred tax adj. 20x2
Closing balance: 20x2
Carrying
amount
(SFP)
(a)
0
(4 000)
(4 000)
4 000
0
Tax base
Temporary
(per IAS 12) difference
(b) – (a)
(b)
(c)
0
0
0
0
0
0
4 000
4 000
(4 000)
0
Deferred
tax
(c) x 27%
(d)
0
1 080
1 080
(1 080)
0
Deferred tax
balance/
adjustment
Dr DT; Cr TE
Asset
Dr TE; Cr DT

Tax base rule for liabilities: Provisions (IAS 12):
◦ Tax base of a liability – Is the carrying amount less
amounts deductible for tax purposes in respect of that
liability in future periods.
Calculation of tax base (Provisions)
20x1
R
20x2
R
Carrying amount
Less: Amount deductible in future for tax
4 000
0
(4 000)
0
0
0
 Calculation of current normal tax
Profit before tax (Accounting profits)
Adjusted for exempt income & non-deductible expenses
Taxable accounting profits and tax expense
Adjusted for movement in temporary differences
Add: Provisions (Closing balance)
20x1
Profits Tax at
27%
20x2
Profits Tax at
27%
16 000
20 000
0
0
16 000
4 320
20 000
5 400
4 000
1 080
(4 000)
(1 080)
Less: Provisions(Opening balance)
4 000
0
(0)
(4 000)
_____________________________________________
Taxable profits and current normal tax
20 000
5 400
16 000
4 320
_____Income Tax (E)_
20x1 SARS: NT
_____
DT
P&L
Provisions for warranty(L)
1 080
4 320
5 400
20x1 Warranty 4 000
Warranty (E)_____
20x1 Provisions
___
5 400
_____
5 400
_
4 00 0
Deferred Tax (A)____
Taxation
SARS: Income tax (L)
20x1 Tax
_
5 400
1 080
_____Income Tax (E)
20x2 SARS: NT
DT
Bank_________
4 320
1 080
5 400
20x2 Provisions
20x2 SARS:IT
Deferred tax (A)
20x2 Bal. b/d
1 080
20x2 Tax
4 000
5 400
Provision for warranty
1 080
___
SARS: Income tax (L)
20x2 Bank
5 400
20x2 Bal. b/d
Tax
20x2 Bank 4 000
_
5 400
4 320
20x2 Bal. b/f 4 000
Entity Name
Statement of Financial Position
As at 31 December 20x2_____________________________
Note
ASSETS
Non-Current assets
Deferred Tax: Income tax
6
__________ ___
20x2
20x1
R
R
0
1 080
0
4 320
4 000
5 400
LIABILITIES
Current liabilities
- Provisions for warranty costs
- SARS: Income tax
Entity name
Statement of Profit or Loss and Other Comprehensive Income
For the year ended 31 December 20x2_____________
Note
Profit before taxation
20x1 (20 000 – 4 000)
Income tax expense
Profit for the year
Other comprehensive income
Total Comprehensive income
5
______________________
20x2
20x1
R
R
20 000
16 000
(5 400)
(4 320)
14 600
11 680
_______0
0
__14 600
11 680
Entity Name
Notes to the financial statements
For the year ended 31 December 20x2__________________________________________
20x2
R
20x1
R
0
1 080
5 400
4 320
4 320
1 080
5 400
(1 080)
5 400
4 320
6. Deferred tax asset/(liability)
The closing balance is constituted by the effects of:
• Year end accruals
15. Income tax expense
•
-
Income tax
-
Current
-
Deferred
Tax expense per statement of comprehensive income
______________________
 Example 11
◦ PBT – R20 000 for 20x1 and 20x2 before:
◦ Interest income of R6 000 for 20x1 received 20x2
11A. Calculation of Deferred tax
Accrued
Interest income
Carrying
amount
(SFP)
(a)
Opening balance: 20x1
Deferred tax adj. 20x1
Closing balance : 20x1
Deferred tax adj. 20x2
Closing balance: 20x2
0
6 000
6 000
(6 000)
0
Tax base
Temporary
(per IAS 12) difference
(b) – (a)
(b)
(c)
0
6 000
6 000
(6 000)
0
0
0
0
0
0
Deferred
tax
(c) x 27%
(d)
0
0
0
0
0
Deferred tax
balance/
adjustment
N/A
N/A
N/A
N/A
Calculation of tax base (Income receivable) 20x1
R
Carrying amount
6 000
Less: Amounts taxed in the future
(0)
6 000

20x2
R
0
0
0
Tax base rule for assets: Income Receivable (IAS 12):
◦ Tax base of an asset – Is the carrying amount less amounts
taxed in future periods.
 Calculation of current normal tax
Profit before tax (Accounting profits)
20x1
Profits Tax at
27%
20x2
Profits Tax at
27%
26 000
20 000
0
0
(20 000 + 6 000) and (20 000 + 0)
Adjusted for exempt income & non-deductible expenses
Taxable accounting profits and tax expense 26 000
Adjusted for movement in temporary differences
7 020
0
20 000
5 400
0
___________________________________________
Taxable profits and current normal tax
26 000
7 020
20 000
5 400
_____Income Tax(E)
20x1 SARS: IT
__
7 020
20x1 Int. Receivable 6 000
__ Interest Receivable (A)__
20x1 Interest
___
6 000
SARS: Income tax (L)
20x1 Tax
Interest Income (I)__
7 020
_____Income Tax (E)
20x2 SARS: IT
Bank_________
5 400
20x2 Int. Rec. 6 000 20x2 SARS:IT
7 020
Interest Receivable___
20x2 Bal. b/d 6 000
___
20x2 Bank
SARS: Income tax (L)
7 020
20x2 Bal. b/d
Tax
_
7 020
5 400
20x2 Bank 6 000
Entity Name
Statement of Financial Position
As at 31 December 20x2_____________________________
Note
ASSETS
Current assets
Income Receivable
__________ ___
20x2
20x1
R
R
0
6 000
5 400
7 020
LIABILITIES
Current liabilities
- SARS: Income Tax
Entity name
Statement of Profit or Loss and Other Comprehensive Income
For the year ended 31 December 20x2_____________
Note
Profit before taxation
20x1 (20 000 + 6 000)
Income tax expense
Profit for the year
Other comprehensive income
Total Comprehensive income
5
______________________
20x2
20x1
R
R
20 000
26 000
(5 400)
(7 020)
14 600
18 980
_______0
0
__14 600
18 980
Entity Name
Notes to the financial statements
For the year ended 31 December 20x2__________________________________________
20x2
R
20x1
R
Income tax
5 400
7 020
-
Current
-
Deferred
5 400
0
7 020
0
5. Income tax expense
•
-
______________________
Tax expense per SPLOCI
5 400
7 020
 Two categories:
◦ Deductible assets: Cost tax deductible
◦ Non-deductible assets: Cost is not tax deductible
 Deductible assets – In general also depreciated
◦ Accounting – Depreciate over time – e.g., machines, vehicles
◦ Tax – Write off over time – allowances – Capital or Wear & Tear
◦ Both reduced to zero or accounting residual value
◦ Some assets not depreciated e.g., Land
◦ If allowances exist for un-depreciated assets – Permanent
difference

Non-deductible assets (E.g., Offices)
◦ Asset depreciated or asset that is not depreciated
 Example 12
◦ PBT – R20 000 for 20x1, 20x2 and 20x3 before:
◦ Plant purchased 1 January 20x1for R30 000
◦ Plant – Depreciated at 50% p.a. on straight-line
◦ Capital allowance at 33⅓% on straight-line
12A. Calculation of Deferred tax
Plant
Opening balance: 20x1
Carrying
amount
(SFP)
(a)
Tax base
Temporary
(per IAS 12) difference
(b) – (a)
(b)
(c)
Deferred
tax
(c) x 27%
(d)
Deferred tax
balance/
adjustment
0
0
0
0
Purchase
30 000
30 000
0
0
Depre./Cap. allow
(15 000)
(10 000)
5 000
1 350
Dr DT - Cr TE
Closing balance : 20x1
15 000
20 000
5 000
1 350
Asset
Depre. / Cap. Allow
(15 000)
(10 000)
5 000
1 350
Dr DT – Cr TE
Closing balance: 20x2
0
10 000
10 000
2 700
Asset
Depre. / Cap. Allow
0
(10 000)
(10 000)
(2 700)
Dr TE – Cr DT
0
0
0
0
 Calculation of current income tax
20x1
20x2
20x3
Profits Tax Profits Tax Profits Tax
27%
27%
27%
Profit before tax
5 000
5 000
20 000
0
0
0
5 000
5 000
20 000
Adjusted for movement in temporary differences 5 000
5 000
(10 000)
15 000
(10 000)
0
(10 000)
(20 000 - 15 000), (20 000-15 000), (20 000 – 0)
Exempt income & non-deductible expenses
Taxable accounting profits, tax expense
- Add: Depreciation
- Less: Capital allowances
15 000
(10 000)
____________________________________________________
Taxable profits and current income tax
10 000
2 700 10 000
2 700
10 000
2 700
Entity name
Statement of Profit or Loss and Other Comprehensive Income
For the year ended 31 December 20x3_____________
Note
20x3
R
Profit before taxation
20 000
Income tax expense
12
(5 400)
Profit for the year
14 600
Other comprehensive income
0
Total Comprehensive income
14 600
______________________
20x2
20x1
R
R
5 000
5 000
(1 350)
(1 350)
3 650
3 650
______0
0
__ 3 650
3 650
Entity Name
Statement of Financial Position
As at 31 December 20x3_____________________________
Note
20x3
R
ASSETS
Non-Current assets
Deferred Tax: Income tax
4
0
Property, plant and equipment
0
__________ ___
20x2
20x1
R
R
2 700
0
1 350
15 000
2 700
2 700
LIABILITIES
Current liabilities
- SARS: Income tax
2 700
Entity Name
Notes to the financial statements
For the year ended 31 December 20x3__________________________________________
20x3
R
20x2
R
20x1
R
0
2 700
1350
5 400
1 350
1 350
2 700
2 700
2 700
(1 350)
2 700
(1 350)
4. Deferred tax asset/(liability)
The closing balance is constituted by the effects of:
• Property, plant and equipment
12. Income tax expense
•
-
Income tax
-
Current
-
Deferred
_______________________________
 CA = Cost
 Tax base will reduce to zero over time
 As not depreciable – No temporary difference,
therefore no deferred tax
 Very unlikely scenario!
 Purchase – Tax base = 0, CA = Original Cost
 Deferred tax > Temporary differences, but
exempt from deferred tax (IAS 12.15)
 As no debit – No double entry = Exempt
 If depreciable – No deferred tax – No tax
deduction on taxable profits
 Carrying amount of asset reduced with
depreciation
 If not depreciable – No deferred tax – No tax
deduction on taxable profits
 Carrying amount of asset not reduced in SFP
 Example 13
◦ PBT – R20 000 for 20x1, 20x2 and 20x3 before:
◦ Building purchased 1 January 20x1for R30 000
◦ Building – Depreciated at 50% p.a. on straight-line,
RV nil
◦ No allowances for tax
13A. Calculation of Deferred tax
Building
Opening balance: 20x1
Carrying
amount
(SFP)
(a)
Tax base
Temporary
(per IAS 12) difference
(b) – (a)
(b)
(c)
Deferred
tax
(c) x 27%
(d)
Deferred tax
balance/
adjustment
0
0
0
0
Purchase
30 000
0
(30 000)
0
Exempt IAS 12.15
Depre./Cap. allow
(15 000)
0
15 000
0
Exempt IAS 12.15
Closing balance : 20x1
15 000
0
(15 000)
0
Exempt IAS 12.15
Depre. / Cap. Allow
(15 000)
0
15 000
0
Exempt IAS 12.15
Closing balance: 20x2
0
0
0
0
Depre./Cap. allow
(0)
0
0
0
Carrying amount 20x3
0
0
0
0
 Calculation of current income tax
20x3
20x2
20x1
Profits Tax Profits Tax Profits Tax
27%
27%
27%
Profit before tax
20 000
5 000
5 000
0
0
0
20 000
5 000
5 000
0
15 000
15 000
0
(0)
15 000
(0)
15 000
(0)
(20x1 & 20x2, 20 000-15 000), (20 000 – 0)
Exempt income & non-deductible expenses
Taxable accounting profits, tax expense
Adjusted for movement in temporary differences
- Add: Depreciation
- Less: Capital allowances
Exempt
____________________________________________________
Taxable profits and current income tax
20 000
Therefore – Now becomes a permanent difference.
5 400 20 000
5 400
20 000
5 400
Entity name
Statement of Profit or Loss and Other Comprehensive Income
For the year ended 31 December 20x3_____________
Note
20x3
R
Profit before taxation
20 000
Income tax expense
12
(5 400)
Profit/(loss) for the year
14 600
Other comprehensive income
0
Total Comprehensive income
14 600
______________________
20x2
20x1
R
R
5 000
5 000
(5 400)
(5 400)
(400)
( 400)
_______0
0
__ (400)
(400)
Entity Name
Notes to the financial statements
For the year ended 31 December 20x3__________________________________________
20x3
R
20x2
R
20x1
R
Income tax
5 400
5 400
5 400
-
Current
-
Deferred
5 400
0
5 400
0
5 400
0
27%
27%
27%
5 400
0
5 400
27%
1 350
4 050
5 400
108%
1 350
4 050
5 400
108%
12. Income tax expense
•
-
Rate reconciliation:
Applicable tax rate
Tax effects of:
Profit before tax 20x1 & 20.2 (5 000 x 27%)
Add: Exempt temporary differences (15 000 x 27%)
Total income tax per SPLOCI
Effective tax rate (ETR)
Entity Name
Statement of Financial Position
As at 31 December 20x3_____________________________
Note
20x3
R
ASSETS
Non-Current assets
Property, plant and equipment
0
__________ ___
20x2
20x1
R
R
0
15 000
5 400
5 400
LIABILITIES
Current liabilities
- SARS: Income tax
5 400
 Example 14
◦ PBT – R20 000 for 20x1, 20x2 and 20x3 before:
◦ Land purchased 1 January 20x1for R30 000
◦ Land – Not Depreciated
◦ No allowances for tax
14A. Calculation of Deferred tax
Land
Opening balance: 20x1
Purchase
Depre./Cap. allow
Closing balance : 20x1
Depre. / Cap. Allow
Closing balance: 20x2
Depre./Cap. allow
Carrying amount 20x3
Carrying
amount
(SFP)
(a)
Tax base
Temporary
(per IAS 12) difference
(b) – (a)
(b)
(c)
Deferred
tax
(c) x 27%
(d)
0
0
0
0
30 000
0
(30 000)
0
(0)
0
0
0
30 000
0
(30 000)
0
(0)
0
0
0
30 000
0
(30 000)
0
(0)
0
0
0
30 000
0
(30 000)
0
Deferred tax
balance/
adjustment
Exempt IAS 12.15
Exempt IAS 12.15
Exempt IAS 12.15
Exempt IAS 12.15
 Calculation of current income tax
20x3
20x2
20x1
Profits Tax Profits Tax Profits Tax
27%
27%
27%
Profit before tax
Exempt income & non-deductible expenses
Taxable accounting profits, tax expense
Adjusted for movement in temporary differences
- Add: Depreciation
- Less: Capital allowances
20 000
20 000
20 000
0
0
0
20 000
20 000
20 000
0
0
0
0
(0)
0
(0)
0
(0)
Exempt
____________________________________________________
Taxable profits and current income tax
20 000
5 400 20 000
5 400
20 000
5 400
Entity name
Statement of Profit or Loss and Other Comprehensive Income
For the year ended 31 December 20x3_____________
Note
20x3
R
Profit before taxation
20 000
Income tax expense
12
(5 400)
Profit for the year
14 600
Other comprehensive income
0
Total Comprehensive income
14 600
______________________
20x2
20x1
R
R
20 000
20 000
(5 400)
(5 400)
14 600
14 600
______0
0
__14 600
14 600
Entity Name
Statement of Financial Position
As at 31 December 20x3_____________________________
Note
20x3
R
ASSETS
Non-Current assets
Property, plant and equipment
30 000
__________ ___
20x2
20x1
R
R
30 000
30 000
5 400
5 400
LIABILITIES
Current liabilities
- SARS: Income tax
5 400
Entity Name
Notes to the financial statements
For the year ended 31 December 20x3__________________________________________
20x3
R
20x2
R
20x1
R
Income tax
5 400
5 400
5 400
-
Current
-
Deferred
5 400
0
5 400
0
5 400
0
12. Income tax expense
•
-
 Deferred tax measured in a way that is
◦ ‘consistent with the expected manner of recovery or
settlement’ of the underlying asset (IAS12.51A)
 Deferred tax = Management’s intention NB!!
 If Non-current asset carried at FV
 CA could be > original cost or < original cost
 If CA > original cost = Capital profit expected
where the capital profit and revenue profit will be
taxed differently
 Two situations where managements intentions
are ignored, and presumed intentions are applied
(IAS12.51B) and (IAS12.51C)
 (IAS 12.51B) Case - Non-depreciable asset
measured using IAS 16’s revaluation model
 Presumption > Managements intention is to
sell the asset – Always
 Reasoning –
◦ Depreciation > Is recovered through use of Asset;
◦ As NO depreciation – Not used up – can only
recover through sale
 Land is an example
 Deferred tax measured in a way that it is
expected to be recovered
 Three possibilities:
◦ Sell asset – DTL - Apply tax legislation applicable to
sale – Recoupment/scrapping and capital
◦ Keep asset – DTL – Apply tax legislation applicable
to revenue from use of asset.
◦ Keep then sell – DTL - Apply tax legislation
applicable to revenue from use of asset plus tax
due on sale of asset
 Initial recognition – Exempt (IAS12.15), but
further revaluation subject to deferred tax
 If intention to keep: Increase in CA the DT will
be calculated based on future sales
 If intention is to sell : Increase in CA the DT
will be calculated based on asset sold
 Example 18 – Intention - Keep
◦ PBT – R1 000 for 20x4 before sale:
◦ Land purchased 1 January 20x1for R1 200
◦ Land – No Depreciation
◦ No allowances for tax – base cost is R1 200
◦ Land re-valued FV of R2 040 on 31 December 20x2
◦ Land sold for R1 800 during 20x4
 Calculation of current income tax
20x4
R
Profit before tax and sale of land
Loss on sale
(Proceeds 1 800 – CA 2 040)
Profit before tax
Add: loss on sale
Add: Taxable capital gain (Proceeds 1800 – Base cost 1 200) x 80%
Taxable profit
Current income tax at 27%
1 000
(240)
760
240
480
1 480
400
18B. Calculation of Deferred tax
Land
Opening balance: 20x1
Carrying
amount
(SFP)
(a)
Tax base
Temporary
(per IAS 12) difference
(b) – (a)
(b)
(c)
Deferred
tax
(c) x 27%
(d)
Deferred tax
balance/
adjustment
0
0
0
0
1 200
0
(1 200)
0
Exempt IAS 12.15
0
0
0
0
Exempt IAS 12.15
1 200
0
(1 200)
0
Exempt IAS 12.15
0
0
0
0
Exempt IAS 12.15
Closing balance 20x2
1 200
0
Revalue 31/12/20x2
840
0
(840)
(181)
Dr RS -Cr DT
Carrying amount 20x2
2 040
0
(2 040)
(181)
L
0
0
0
0
Carrying amount 20x3
2 040
0
(2 040)
(181)
L
Sold (CA)
(2 040)
0
2 040
181
Dr DT – Cr RS
0
0
0
0
Purchase
Movement
Closing balance : 20x1
Movement
Movement
Carrying amount 20x4
0
 Calculation of recoupment and taxable gain
31/12/20x2
CA = 2 040
W1. Tax on recoupment:
Profits Tax at
27%
Selling price – 2 040, limited to 1200
1 200
Less tax base
Recoupment
0
1 200
0
No recoupment – non-deductible asset
W2. Tax on taxable capital gain
Selling price
Less base cost – assume = cost
Capital gain/(loss)
Inclusion rate
Taxable capital gain/(loss)
2 040
(1 200)
840
80%
672
181
Entity Name
Notes to the financial statements
For the year ended 31 December 20x4__________________________________________
20x4
R
20x3
R
Income tax
400
xxx
-
Current
-
Deferred (Credited to RS)
400
0
xxx
xxx
27%
xx%
• Profit before tax
760 x 27%
205
• Exempt capital loss permanent (Gain 480 + Loss 240) x 27% 195
Tax expense per Statement of Comprehensive Income
400
Effective rate
(400/760) x 100
52.6%
xxx
xxx
xxx
xx%
3. Income tax expense
•
-
Rate reconciliation
Applicable rate
Tax effects of
Sale of depreciable asset – Below original cost
and results in profit
Purchase of asset – 1 January 20x1 for R1 200
Depreciation – Nil residual 3 years straight line
Wear & Tear
4 years straight line
Sale of asset – 1 January 20x3 for R900
Income tax rate
27%
W1. Calculating the profit/loss on sale
Proceeds on sale
Less: CA
Profit on sale
R
900
(400)
(1 200 – (1 200/3 x 2)
500 Deduct
W2. Calculating the recoupment or scrapping allowance
Proceeds on sale
Less: Tax base
Recoupment
R
900
(600)
(1 200 – (1 200/4 x 2)
300 Add
Sale of depreciable asset – Below original cost
and results in a loss
Purchase of asset – 1 January 20x1 for R1 200
Depreciation – Nil residual 3 years straight line
Wear & Tear
4 years straight line
Sale of asset – 1 January 20x3 for R300
Income tax rate
27%
W1. Calculating the profit/loss on sale
Proceeds on sale
Less: CA
Loss on sale
R
300
(400)
(100)
(1 200 – (1 200/3 x 2)
Add
W2. Calculating the recoupment or scrapping allowance
Proceeds on sale
Less: Tax base
Scrapping allowance
R
300
(600)
(300)
(1 200 – (1 200/4 x 2)
Deduct
 Example 21
◦ PBT – R20 000 for 20x1, 20x2 before:
◦ Plant purchased 1 January 20x1 for R30 000
◦ Plant – Depreciated at 50% p.a. on straight-line
◦ Capital allowance at 33⅓% on straight-line
◦ Sold on 1 January 20x2 for R21000
21A. Calculation of Deferred tax
Plant
Opening balance: 20x1
Carrying
amount
(SFP)
(a)
Tax base
Temporary
(per IAS 12) difference
(b) – (a)
(b)
(c)
Deferred
tax
(c) x 28%
(d)
Deferred tax
balance/
adjustment
0
0
0
0
Purchase
30 000
30 000
0
0
Depre./Cap. allow
(15 000)
(10 000)
5 000
1 350
Dr DT - Cr TE
Closing balance : 20x1
15 000
20 000
5 000
1 350
Asset
Sale – W/O – CA TB
(15 000)
(20 000)
(5 000)
(1 350)
Cr DT – Dr TE
0
0
0
Closing balance: 20x2
0
A.
Calculating the profit on sale
Proceeds on sale
Less: CA
Profit on sale
B.
R
21 000
(15 000)
6 000
(30 000 – (30 000/2 x 1)
Deduct
Calculating of the recoupment or scrapping allowance
Proceeds on sale
Less: TB
Recoupment
R
21 000
(20 000)
1 000
(30 000 – (30 000/3 x 1)
Add
c. Calculation of current income tax
20x2
Profits Tax
27%
20x1
Profits Tax
27%
Profit before tax (20 000 + 6 000)
26 000
7 020
5 000
1 350
Adjusted for movement in temporary differences
(5 000)
(1 350)
5 000
1 350
- Add: Recoupment
- Less: Profit on sale
Taxable profits and current income tax
1 000
(6 000)
Depreciation
W&T
15 000
(10 000)
________
_____
________
_____
21 000
5 670
10 000
2700
Entity name
Statement of Profit or Loss and Other Comprehensive Income
For the year ended 31 December 20x2_____________
Note
Profit before taxation
Income tax expense
Profit for the year
Other comprehensive income
Total Comprehensive income
12
______________________
20x2
20x1
R
R
26 000
5 000
(7 020)
(1 350)
18 980
3 650
_______0
0
__ 18 980
3 650
Entity Name
Statement of Financial Position
As at 31 December 20x3_____________________________
Note
ASSETS
Non-Current assets
Deferred Tax: Income tax
Property, Plant & Equipment
4
__________ ___
20x2
20x1
R
R
0
0
1 350
15 000
5 670
2 700
LIABILITIES
Current liabilities
- SARS: Income tax
Entity Name
Notes to the financial statements
For the year ended 31 December 20x2__________________________________________
20x2
R
20x1
R
0
1 350
7 020
1 350
5 670
1 350
2 700
(1 350)
4. Deferred tax asset/(liability)
The closing balance is constituted by the effects of:
• Property, plant and equipment
12. Income tax expense
•
-
Income tax
-
Current
-
Deferred
_______________________________
 Example 22
◦ PBT – R20 000 for 20x1, 20x2 before:
◦ Plant purchased 1 January 20x1for R30 000
◦ Plant – Depreciated at 50% p.a. on straight-line
◦ Capital allowance at 33⅓% on straight-line
◦ Base cost R31 000
◦ Sold on 1 January 20x2 for R35000
22A. Calculation of Deferred tax
Plant
Opening balance: 20x1
Carrying
amount
(SFP)
(a)
Tax base
Temporary
(per IAS 12) difference
(b) – (a)
(b)
(c)
Deferred
tax
(c) x 27%
(d)
Deferred tax
balance/
adjustment
0
0
0
0
Purchase
30 000
30 000
0
0
Depre./Cap. allow
(15 000)
(10 000)
5 000
1 350
Dr DT - Cr TE
Closing balance : 20x1
15 000
20 000
5 000
1 350
Asset
Sale – W/O – CA & TB
(15 000)
(20 000)
(5 000)
(1 350)
Cr DT – Dr TE
0
0
0
Closing balance: 20x2
0
W1 Calculating of the recoupment - SARS
Proceeds on sale Limited to cost
Less: TB
Recoupment
R
30 000
(20 000)
10 000
(30 000 – (30 000/3 x 1)
W2 Calculating of the capital gain - SARS
Proceeds on sale
Less: Base cost
Gain
Taxable gain
R
35 000
(31 000)
4 000 Inclusion rate 80%
3 200
W3. Calculating the profit on sale - Accounting
R
Proceeds on sale
35 000
Less: CA
(15 000)
Profit on sale
20 000
Capital profit
5 000
15 000
Non-capital profit
(30 000 – (30 000/2 x 1)
(35 000 – 30 000)
(30 000 – 15 000)
 Calculation of current normal tax
20x2
Profits Tax
27%
Profit before tax (20 000 + 20 000)
40 000
Adjusted for exempt income – Permanent differences
(1 800)
- Add: Taxable capital gain (W2)
- Less: Capital Profit on sale (W3)
3 200
(5 000)
Adjusted for movement in temporary differences
(5 000)
- Add: Recoupment (W1)
- Less: Non-capital Profit on sale (W3)
Taxable profits and current income tax
10 000
(15 000)
20x1
Profits
Tax
27%
(20 000 – 15 000) 5 000
Depreciation
W&T
15 000
(10 000)
________
_____
________
_____
33 200
8 964
10 000
2 700
Entity name
Statement of Profit or Loss and Other Comprehensive Income
For the year ended 31 December 20x3_____________
Note
Profit before taxation
Income tax expense
Profit for the year
Other comprehensive income
Total Comprehensive income
12
______________________
20x2
20x1
R
R
40 000
5 000
(10 314)
(1 350)
29 686
3 650
_______0
0
__ 29 686
3 650
Entity Name
Notes to the financial statements
For the year ended 31 December 20x3__________________________________________
20x2
R
20x1
R
0
1350
10 314
1 350
8 964
1 350
2 700
(1 350)
4. Deferred tax asset/(liability)
The closing balance is constituted by the effects of:
• Property, plant and equipment
12. Income tax expense
•
-
Income tax
-
Current
-
Deferred
_________
________
 Example 23
◦ PBT – R20 000 for 20x1, 20x2 before:
◦ Land purchased 1 January 20x1for R30 000
◦ Land – Not depreciated
◦ Land – No Capital allowances
◦ Sold on 1 January 20x2 for R20 000
23A. Calculation of Deferred tax
Land
Opening balance: 20x1
Purchase
Depre./Cap. allow
Closing balance : 20x1
Sale
Closing balance: 20x2
Carrying
amount
(SFP)
(a)
Tax base
Temporary
(per IAS 12) difference
(b) – (a)
(b)
(c)
Deferred
tax
(c) x 27%
(d)
Deferred tax
balance/
adjustment
0
0
0
0
30 000
0
(30 000)
0
(0)
(0)
0
0
30 000
0
(30 000)
0
Exempt IAS12.15
_(30 000)
(0)
30 000
(0)
Exempt IAS12.15
0
0
0
0
Exempt IAS12.15
W2 Calculating of the recoupment/(scrapping) - SARS
Proceeds on sale
Less: TB
Recoupment N/A
NO Deductions
R
20 000
(0)
0
W3. Calculating the profit/(loss) on sale - Accounting
R
Proceeds on sale
20 000
Less: CA
(30 000)
Loss on sale
(10 000)
Cost = CA
 Calculation of current income tax
20x2
Profits Tax
27%
Profit before tax (20 000 - 10 000)
10 000
Adjusted for capital loss (IAS 12.15)
10 000
- Add: Loss on sale (W3)
10 000
Adjusted for movement in temporary differences
Taxable profits and current income tax
(0)
________
_____
20 000
5 400
Entity name
Statement of Profit or Loss and Other Comprehensive Income
For the year ended 31 December 20x2_____________
Note
Profit before taxation
Income tax expense
Profit for the year
Other comprehensive income
Total Comprehensive income
12
______________________
20x2
20x1
R
R
10 000
20 000
(5 400)
(5 400)
4 600
14 600
_______0
0
__ 4 600
14 600
Entity Name
Notes to the financial statements
For the year ended 31 December 20x2__________________________________________
20x2
R
20x1
R
Income tax
5 400
5 400
-
Current
-
-
Deferred
5 400
0
5 400
0
-
Tax expense per statement of comprehensive income
5 400
5 400
12. Income tax expense
•
Rate reconciliation:
Applicable tax rate
Tax effects of:
Profit before tax (10 000 x 27%); (20 000 x 27%)
Add: Exempt permanent difference: Loss
Total income tax per SPLOCI
Effective tax rate (ETR)
_________________________
27%
27%
2 700
2 700
5 400
54%
5 400
0
5 400
27%
 Example 24
◦ PBT – R20 000 for 20x1, 20x2 before:
◦ Land purchased 1 January 20x1for R30 000
◦ Land – Not depreciated
◦ Land – No Capital allowances
◦ Sold on 1 January 20x3 for R40 000
◦ Base cost R30 000
24A. Calculation of Deferred tax
Land
Opening balance: 20x1
Purchase
Depre./Cap. allow
Closing balance : 20x1
Sale
Closing balance: 20x2
Carrying
amount
(SFP)
(a)
Tax base
Temporary
(per IAS 12) difference
(b) – (a)
(b)
(c)
Deferred
tax
(c) x 27%
(d)
Deferred tax
balance/
adjustment
0
0
0
0
30 000
0
(30 000)
0
(0)
(0)
0
0
30 000
0
(30 000)
0
Exempt IAS 12.15
_(30 000)
(0)
30 000
(0)
Exempt IAS 12.15
0
0
0
0
Exempt IAS 12.15
W2. Calculating of capital gain - SARS
Proceeds on sale
Less: Base cost
Gain
Inclusion rate
Taxable capital gain
R
40 000
(30 000)
10 000
80%
8 000
W3. Calculating the profit/(loss) on sale - Accounting
Proceeds on sale
Less: CA
Profit on sale (capital)
R
40 000
(30 000)
10 000
Cost = CA
 Calculation of current income tax
20x2
Profits Tax
27%
Profit before tax (20 000 + 10 000)
30 000
Adjusted for exempt capital profit
(2 000)
- Add: Capital gain (W2)
8 000
(10 000)
- Less: Capital profit (W3)
Adjusted for movement in temporary differences
Taxable profits and current income tax
20x1
Profits Tax
27%
20 000
(0)
________
_____
________
_____
28 000
7 560
20 000
5 400
Entity name
Statement of Profit or Loss and Other Comprehensive Income
For the year ended 31 December 20x2_____________
Note
Profit before taxation
Income tax expense
Profit for the year
Other comprehensive income
Total Comprehensive income
12
______________________
20x2
20x1
R
R
30 000
20 000
(7 560)
(5 400)
22 440
14 600
_______0
0
__ 22 440
14 600
Entity Name
Notes to the financial statements
For the year ended 31 December 20x2__________________________________________
20x2
R
20x1
R
Income tax
7 560
5 400
-
Current
-
-
Deferred
7 560
0
5 400
0
-
Tax expense per statement of comprehensive income
7 560
5 400
27%
27%
8 100
(540)
7 560
25.2%
5 400
0
5 400
27%
12. Income tax expense
•
Rate reconciliation:
Applicable tax rate
Tax effects of:
Profit before tax 20x1 & 20.2 30 000 x 27%
Less: Exempt permanent difference: Profit (2 000 x 27%)
Total income tax per SPLOCI
Effective tax rate (ETR)
_______________ __________
 Example 25
◦ PBT – R50 000 for 20x1, R20 000 for 20x2 before:
◦ Office building purchased 1 January 20x1 for R30 000
◦ Depreciated at 10% p.a. on cost
◦ SARS – No Capital allowances
◦ Sold on 1 January 20x2 for R28 000
25A. Calculation of Deferred tax
Office
Building
Opening balance: 20x1
Carrying
amount
(SFP)
(a)
Tax base
Temporary
(per IAS 12) difference
(b) – (a)
(b)
(c)
Deferred
tax
(c) x 27%
(d)
Deferred tax
balance/
adjustment
0
0
0
0
Purchase
30 000
0
(30 000)
0
Exempt IAS 12.15
Depre./Cap. allow
(3 000)
(0)
3 000
0
Exempt IAS 12.15
Closing balance : 20x1
27 000
0
(27 000)
0
Exempt IAS 12.15
_(27 000)
(0)
27 000
(0)
Exempt IAS 12.15
0
0
0
Sale
Closing balance: 20x2
0
W2. Calculating of the recoupment/(scrapping) - SARS
Proceeds on sale
Less: TB
Recoupment N/A
NO Deductions
R
28 000
(0)
0 Exempt
W3. Calculating the profit/(loss) on sale - Accounting
Proceeds on sale
Less: CA
Profit/(Loss) on sale
R
28 000
(27 000)
1 000
(30 000 – (30 000 x 10%))
 Calculation of current income tax
20x2
Profits Tax
27%
20x1
Profits Tax
27%
Profit before tax (20 000 + 1 000)
21 000
Adjusted for exempt income
(1 000)
3 000
- Add: Depreciation
0
(1 000)
3 000
(0)
(0)
(0)
- Less: Profit on sale (W3)
Adjusted for movement in temporary differences
Taxable profits and current income tax
(50 000 – 3 000)
47 000
________
________
_______
______
20 000
5 400
50 000 13 500
Entity name
Statement of Profit or Loss and Other Comprehensive Income
For the year ended 31 December 20x2_____________
Note
Profit before taxation
Income tax expense
Profit for the year
Other comprehensive income
Total Comprehensive income
12
______________________
20x2
20x1
R
R
21 000
47 000
(5 400)
(13 500)
14 600
33 500
______ 0
0
__ 14 600
33 500
Entity Name
Notes to the financial statements
For the year ended 31 December 20x2__________________________________________
20x2
R
20x1
R
Income tax
5 400
13 500
-
Current
-
-
Deferred
5 400
0
13 500
0
-
Tax expense per statement of comprehensive income
5 400
13 500
27%
27%
5 670
(270)
0
5 400
25.7%
12 690
0
810
13 500
28.7%
12. Income tax expense
•
Rate reconciliation:
Applicable tax rate
Tax effects of:
Profit before tax (21 000 x 27%) and (47 000 x 27%)
Less: Exempt temporary difference: Profit (1000 x 27%)
Add: Exempt temporary difference: Depre.(3000 x 27%)
Total income tax per SPLOCI
Effective tax rate (ETR)
_________________________
 Example 26
◦ PBT – R20 000 for 20x1, 20x2 before:
◦ Building purchased 1 January 20x1for R30 000
◦ Depreciated at 10% p.a. on straight-line (RV: nil)
◦ No Capital allowances
◦ Base cost R30 000
◦ Sold on 1 January 20x2 for R40 000
26A. Calculation of Deferred tax
Building
Opening balance: 20x1
Carrying
amount
(SFP)
(a)
Tax base
Temporary
(per IAS 12) difference
(b) – (a)
(b)
(c)
Deferred
tax
(c) x 27%
(d)
Deferred tax
balance/
adjustment
0
0
0
0
Purchase
30 000
0
(30 000)
0
Exempt IAS 12.15
Depre./Cap. allow
(3 000)
(0)
3 000
0
Exempt IAS 12.15
Closing balance : 20x1
27 000
0
(27 000)
0
Exempt IAS 12.15
_(27 000)
(0)
27 000
(0)
Exempt IAS 12.15
0
0
0
Sale
Closing balance: 20x2
0
W1 Calculating of the recoupment - SARS
Proceeds on sale Limited to cost
Less: TB
Recoupment N/A
R
30 000
(0)
0 Exempt IAS 12.15
W2 Calculating of the capital gain - SARS
Proceeds on sale
Less: Base cost
Gain
Inclusion rate
Taxable gain
R
40 000
(30 000)
10 000
80%
8 000
W3. Calculating the profit on sale - Accounting
R
Proceeds on sale
40 000
Less: CA
(27 000)
Profit on sale
13 000
Capital profit
10 000
3 000
Non-capital profit
(Deferred tax schedule)
(40 000 – 30 000)
(30 000 – 27 000)
 Calculation of current income tax
20x2
R
20x1
R
Profit before tax (20 000 + 13 000)
33 000
(20 000 – 3 000) 17 000
Adjusted for exempt income – Permanent difference
(2 000)
0
- Less: Capital Profit on sale (W3)
8 000
(10 000)
0
(0)
Adjusted for movement in permanent differences
(3 000)
3 000
0
(3 000)
0
3 000
(0)
0
- Add: Capital Gain (W2)
- Add: Depreciation
- Less: Non-capital profit (W3)
- Add: Recoupment (W1)
________
________
Taxable profits
28 000
20 000
Current normal tax at 27%
7 560
5 400
Entity name
Statement of Profit or Loss and Other Comprehensive Income
For the year ended 31 December 20x3_____________
Note
Profit before taxation
Income tax expense
Profit for the year
Other comprehensive income
Total Comprehensive income
12
______________________
20x2
20x1
R
R
33 000
17 000
(7 560)
(5 400)
25 440
11 600
_______0
0
__ 25 440
11 600
Entity Name
Notes to the financial statements
For the year ended 31 December 20x2__________________________________________
20x2
20x1
R
R
Income tax
7 560
5 400
-
Current
-
-
Deferred
7 560
0
5 400
0
-
Tax expense per statement of comprehensive income
7 560
5 400
12. Income tax expense
•
Rate reconciliation:
Applicable tax rate
Tax effects of:
Profit before tax (33 000 x 27%) and (17 000 x 27%)
Less: Exempt Capital Profit (10 000 - 8 000) x 27%
Less: Exempt : Non-Cap Profit (3000 x 27%)
Add: Exempt : Depre.(3000 x 27%)
Total income tax per SPLOCI
Effective tax rate (ETR)
_________________________
27%
27%
8 910
(540)
(810)
0
7 560
22.9%
4 590
0
810
5 400
31.8%
 Measurement: enacted tax rates vs. substantively
enacted tax rates
◦ Current tax – current year tax assessed
◦ Deferred tax – future tax payable/receivable
◦ Both taxes use enacted rate or for deferred tax the
new rate if substantively enacted at reporting date
◦ Substantively enacted – Date announced in Minister of
Finance Budget Speech, But if new rate inextricably
linked to other tax laws – The President must first
sign legislation as approval of change
 Example 27
 Rate change – Opening deferred tax balances
to be re-estimated > Change in estimate
Example 28
 Example 29
◦ DT Balance – R45 000 (Credit balance) for 20x1,
relates to PPE
◦ Tax rate was 45% for 20x1, changed to 35% in 20x2
◦ PBT – R200 000 for 20x2 – all taxable
◦ No balances and no payments to SARS
29B. Calculation of Deferred tax
PPE
Carrying
amount
(SFP)
(a)
Tax base
Temporary
(per IAS 12) difference
(b) – (a)
(b)
(c)
Deferred
tax
(c) x ATR
(d)
Deferred tax
balance/
adjustment
Closing balance: 20x1
0
0
(100 000)
(45 000)
45 000/.45
Rate adjustment
0
0
0
10 000
Dr DT - Cr TE
Opening balance : 20x2
0
0
(100 000)
(35 000)
100 000 x 35%
 Calculation of current normal tax
20x2
Profits Tax
35%
Profit before tax
Adjusted for exempt income
- Add: Taxable
200 000
(0)
- Less: Accounting
0
(0)
Adjusted for movement in temporary differences
(0)
- Add: Recoupment
- Less: Non-capital Profit on sale
Taxable profits and current income tax
0
(0)
________
_____
200 000
70 000
Entity name
Statement of Profit or Loss and Other Comprehensive Income
For the year ended 31 December 20x2_____________
Note
Profit before taxation
Income tax expense
Profit for the year
Other comprehensive income
Total Comprehensive income
12
______________________
20x2
20x1
R
R
200 000
0
(60 000)
(0)
140 000
0
_______0
0
_ 140 000
0
Entity Name
Notes to the financial statements
For the year ended 31 December 20x2__________________________________________
20x2
R
12. Income tax expense
•
-
Income tax
60 000
-
Current
-
Deferred
70 000
0
(10 000)
-
Current year
Rate change
Tax expense per statement of comprehensive income
Rate reconciliation:
Applicable tax rate
_________________
60 000
35%
Tax effects of:
Profit before tax (200 000 x 35%)
Rate change
Total income tax per SPLOCI
Effective tax rate (ETR)
70 000
(10 000)
60 000
30%
Entity Name
Notes to the financial statements
For the year ended 31 December 20x2__________________________________________
20x2
R
20x1
R
4. Deferred tax liability
The closing balance is constituted by the effects of:
• Property, plant and equipment
35 000
45 000
 Three categories
Deductible Temporary
differences
Unused tax credits
Unused tax losses
(Assessed Loss)
 Deferred tax asset
IAS 12.24 Deductible TD
IAS 12.34 Unused tax credits & losses
Probable that future economic benefits will flow
Example 30
 Example 31
◦ Computer purchased 1 January 20x1for R100 000
◦ Depreciated at 50% p.a. on straight-line (RV: nil)
◦ SARS – Capital allowance of 20% in 20x1, 40% in
20x2 and 40% in 20x3
A. Forecast PBT – R240 000 for 20x1,
B. Forecast PBT – R10 000 20x2 > close down
C. Forecast LBT – R240 000 (R120 000 20x2 and
20x3 > close down before end 20x3
W1. Calculation of Deferred tax
Computer
Opening balance: 20x1
Carrying
amount
(SFP)
(a)
Tax base
Temporary
(per IAS 12) difference
(b) – (a)
(b)
(c)
Deferred
tax
(c) x 27%
(d)
Deferred tax
balance/
adjustment
0
0
0
0
Purchase
100 000
100 000
0
0
Depre./Cap. allow
(50 000)
(20 000)
30 000
8 100
Dr DT Cr TE
Closing balance : 20x1
50 000
80 000
30 000
8 100
Asset
Future Depre/Cap allow
(50 000)
(80 000)
(30 000)
(8 100)
Dr TE Cr DT
0
0
0
0
Closing balance: 20x3
W2. Calculation of future income tax
Scenario
Future Profit/(Loss) before tax
Adjusted for exempt income
Adjusted for movement in temporary differences
- Add: Depreciation
- Less: Capital allowances
A
B
C
240 000
10 000
(240 000)
(0)
(0)
(0)
(30 000)
(30 000)
(30 000)
50 000
(80 000)
50 000
(80 000)
50 000
(80 000)
Taxable profit/(Loss)
________
210 000
_________
(20 000)
________
(270 000)
Current tax at 27%
56 700
0
0
W3. Calculation of future tax savings
Tax due – PBT (240 000 x 27%), (10 000 x 27%)
Less: Payable (W2)
Future tax saving due to TD
 DT Asset (Maximum)
64 800
(56 700)
8 100
2 700
0
2 700
0
0
0
 Example 32
◦ Vehicle purchased 1 January 20x1for R120 000
◦ Depreciated over 4 years on straight-line (RV: nil)
◦ SARS – Capital allowance of 50% p.a.
PBT 31 December 20x1 – Loss R40 000
PBT 31 December 20x2 – Loss R20 000
PBT 31 December 20x3 – Profit R400 000
Expected to make sufficient taxable profits in future.
Calculation of profit and current tax (Assessed losses)
20x3
20x2
20x1
Profit/(Loss) before tax
Add/Less: Timing differences
Add: Depreciation (TD)
Less: Wear & Tear (TD)
Taxable profit/(Loss) Current yr
Assessed loss brought forward
Taxable Profit/(Loss)
400 000
(20 000)
(40 000)
30 000
(0)
430 000
(120 000)
310 000
30 000
(60 000)
(50 000)
(70 000)
(120 000)
30 000
(60 000)
(70 000)
0
(70 000)
Current normal tax at 27%
83 700
0
0
32B. Calculation of Deferred tax
Vehicle
Carrying
amount
(SFP)
(a)
Tax base
Temporary
(per IAS 12) difference
(b) – (a)
(b)
(c)
Deferred
tax
(c) x 27%
(d)
Opening balance: 20x1
Purchase
Depre./Cap. allow
Closing balance : 20x1
Depre. / Cap. Allow
Closing balance: 20x2
Depre. / Cap. Allow
Closing balance: 20x3
0
120 000
(30 000)
90 000
(30 000)
60 000
(30 000)
30 000
0
120 000
(60 000)
60 000
(60 000)
0
(0)
0
0
0
(30 000)
(30 000)
(30 000)
(60 000)
30 000
(30 000)
0
0
(8 100)
(8 100)
(8 100)
(16 200)
8 100
(8 100)
Tax Loss
Opening balance: 20x1
Tax loss
Closing balance : 20x1
Tax loss increase
Closing balance: 20x2
Tax loss decrease
Closing balance: 20x3
0
(0)
0
0
0
0
0
0
70 000
70 000
50 000
120 000
(120 000)
0
0
70 000
70 000
50 000
120 000
(120 000)
0
0
18 900
18 900
13 500
32 400
(32 400)
0
Deferred tax
balance/
adjustment
Dr TE - Cr DT
Liability
Dr TE – Cr DT
Liability
Dr DT - Cr TE
Liability
Dr DT - Cr TE
Asset
Dr DT – Cr TE
Asset
Cr DT – Dr TE
Journals 20X1
Income tax expense (P/L)
Debit
8 100
Deferred tax (SFP)
8 100
DT adjustment - Vehicle
Deferred tax (SFP)
Income tax expense (P/L)
Credit
18 900
18 900
DT adjustment - Loss
Journals 20X2
Income tax expense (P/L)
8 100
Deferred tax (SFP)
8 100
DT adjustment - Vehicle
Deferred tax (SFP)
Income tax expense (P/L)
DT adjustment - Loss
13 500
13 500
Journals 20X3
Debit
Deferred tax (SFP)
Income tax expense (P/L)
8 100
Credit
8 100
DT adjustment – Vehicle
Income tax expense (P/L)
32 400
Deferred tax (SFP)
32 400
DT adjustment – Loss
Income tax expense (P/L)
SARS: Income Tax
83 700
(SFP)
Income tax estimate – Current year
83 700
Entity name
Statement of Profit or Loss and Other Comprehensive Income
For the year ended 31 December 20x3_____________
Note
Profit/(Loss) before taxation
Income tax income/(expense)
Profit for the year
Other comprehensive income
Total Comprehensive income
12
______________________
20x3
20x2
R
R
400 000
(20 000)
(108 000)
5 400
292 000
(14 600)
_______0
0
_ 292 000
(14 600)
Entity Name
Notes to the financial statements
For the year ended 31 December 20x3__________________________________________
20x3
R
20x2
R
(8 100)
0
(8 100)
(16 200)
32 400
16 200
108 000
(5 400)
83 700
24 300
0
(5 400)
4. Deferred tax asset/(liability)
The closing balance is constituted by the effects of:
• Property, plant and equipment
• Tax Losses
12. Income tax expense
•
-
Income tax
-
Current
-
Deferred
_______________________________
IAS 1 and IAS 12
 Tax due to P/L


Tax due to Gain/Loss
 SFP
SPLOCI – Line item
Supporting note
OCI
Deduct from component
Supporting note
DT > Non-Current asset/liability (IAS1.56)
DT > No setting off A against L unless
• Legally allowed; and
• Levied same authority
Example 35
DT Note > Asset or Liability (IAS 12.81 (g)):
Disclose for each:

◦ Type of temporary difference
◦ Unused tax losses
◦ Unused tax credits

For example:
Entity name
Notes to the financial statements
For the year ended ……………
5. Deferred income tax asset/(liability)
The closing balance is constituted by the effects of:
•
•
•
•
Provisions
Year-end accruals
Property, plant and equipment
Unused tax loss
20x2
R
3 600
4 000
(16 000)
7 000
(1 400)
20x1
R
.
8 000
(11 000)
15 000
(6 000)
6 000
 DT Reconciliation may be required
◦ If DT balance has P/L and OCI items.
 Extra detail if > Unrecognised DT asset
◦ Amount of TD, unused tax loss and unused tax credit
◦ Expiry date of tax loss/credit, if any
 Extra detail on recognized DT asset when
◦ Entity suffered a loss in current or preceding year, and
◦ Utilization dependent on future TP in excess of profits arising
from reversing existing temporary differences.
 Extra detail on unrecognized DT liabilities
◦ Income tax relating to dividends declared or proposed,
before authorization date, not raised as liability.
 On SPLOCI – Income tax expense (IAS 1)
 Note > Income tax expense
• Step 1 - Split
• Step 1 - Split
Income tax
Other taxes
Current tax
Deferred tax
• Step 3 - Rate Reconciliation
◦
◦
◦
◦
◦
◦
◦
ATR
PD
Current tax over/under provision
DT Rate change
Other taxes
Tax expense per SPLOCI
ETR
Current
year
Prior year
Under/(over)
provision
Current
year
Prior year
DT Rate
change
Effect of deferred tax assets on TE note
◦ Relative to DT expense
 Reductions in expense caused by recognizing
previously unrecognized DT asset
 Increase in DT expense > Previous DT asset now
written down
 Decreases in DT expense > previous write down
reversed
◦ Relative to current tax expense
 Decrease in current tax> DT asset unrecognized now
utilized
 Tax relating to changes in accounting policy and
correction of errors
◦ Adjustment caused by:
 Change in accounting policy
 Correction of error
Shown separately from
other tax
May aggregate >
DT and current tax

Extra detail required for discontinuing
operations – Tax expense relating to
o Gain or loss on discontinuance
o P/L from ordinary activities of discontinued operation for
period and prior periods.
 Tax on OCI
◦ Separately disclosed for each item
 Grouped under >
 Items that may be reclassified to profit or loss; and
 Items that will never be reclassified to profit or loss
◦ Reclassification adjustments
 Reclassification > separately disclosed
 Tax adjustment > separately disclosed and
reclassification adjustment >separately disclosed
 On face of SPLOCI or note