Intermediate Accounting, Tenth Canadian Edition, Volume 2

Chapter 18

Income Taxes

OVERVIEW

Most revenue transactions are taxable (and therefore increase taxable income) in the current period or in a future period. As well, most expense transactions are deductible for tax purposes (and therefore decrease taxable income) in the current period or in a future period. Under IFRS's temporary difference approach, and ASPE's future income taxes method, interperiod tax allocation is applied when a revenue or expense item is reported on the income statement for financial reporting purposes in one period, but included in taxable income for tax purposes in a different period. Interperiod tax allocation refers to recognition of tax effects in the accounting period when the related transactions or events are recognized for financial reporting purposes, usually resulting in recognition of a deferred (or future income) tax liability and/or a deferred (or future income) tax asset on the statement of financial position. After proper interperiod tax allocation, the income tax consequences of revenues and expenses are reflected on the income statement in the same year that the related revenues and expenses are reported on the income statement, regardless of whether or not those revenues and expenses affect the same year's current income tax payable.

STUDY STEPS

Understanding the Nature of Income Taxes

Accounting income versus taxable income

Income tax payable is calculated based on income as defined by the Income Tax Act, or taxable income. Accounting ...