Wiley International Trends in Financial Reporting under IFRS: Including Comparisons with US GAAP, Chinese GAAP, and Indian GAAP

CHAPTER 36

INCOME TAXES (IAS 12)

1. OBJECTIVE

1.1 This Standard prescribes the accounting treatment for income taxes and includes all domestic and foreign taxes that are based on taxable profits as well as withholding and other taxes that are payable by subsidiaries on distributions to the reporting entity.

1.2 This Standard does not include government grants that are dealt with by International Accounting Standard (IAS) 20, Accounting for Government Grants and Disclosure of Government Assistance and Investment Tax Credits.

2. SYNOPSIS OF THE STANDARD

The summary of this Standard, which is to be applied in accounting for income taxes, follows.

2.1 The main basis of accounting for income taxes is the recognition of the current and future tax consequences of

• The transactions that are recognized in the current period;
• Future recovery of assets in the entity’s statement of financial position; and
• Future settlement of liabilities in the entity’s statement of financial position.

2.2 The tax base of an asset is the amount that is deductible for tax purposes against the taxable income generated by the asset. For example, for an item of equipment, depreciation that has been charged in the current and earlier periods has already been considered as an expense and the carrying value of the equipment will also be recognized as an expense in future years.

2.2.1 When the income at the time the carrying amount of the asset is recovered is not taxable, the carrying value of the asset will be ...