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In this newsletter, we look at the following topic:
Nine steps to income tax accounting
Profit for accounting purposes and profit for tax purposes are seldom the same number, even in the most simple of companies. The book value of an asset or liability is often different from the amount assigned to that asset or liability for tax purposes; or they impact the income statement at different times. Think of deferred tax accounting as constructing a balance sheet based on IFRS and a corresponding tax balance sheet based on tax laws. The difference between the two balance sheets, measured at the right tax rate, means that the accounting profit or loss in any period may be different from the taxable profit or loss in the same period.
A company may end up paying tax when it recovers (for example, uses or sells) an asset or settles (for example, pays or transfers to a third party) a liability for its book (carrying) amount and there is no accounting profit or loss. Deferred tax accounting is designed to deal with this situation; management recognises deferred taxes based on these differences.
This newsletter sets out a simple nine-step approach to calculating deferred tax.
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Read more by downloading our HKFRS News - Mar 2009 (pdf file, 108KB) for your reference.
Note: HKFRS has converged with IFRS effective from 1 January 2005. Contents contained in this newsletter are relevant to both HKFRS preparers and IFRS preparers.
Other Issues of HKFRS News
Accounting and Listing Rules Updates
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