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Wiley IFRS: Practical Implementation Guide and Workbook, 3rd Edition by Liesel Knorr, Graham Holt, Abbas A. Mirza

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Chapter 9
INCOME TAXES (IAS 12)

BACKGROUND AND INTRODUCTION

The Standard Applies to the Accounting for Income Taxes
 
IAS 12 uses a liability method and adopts a statement of financial position approach. Instead of accounting for the timing differences between the accounting and tax consequences of revenue and expenses, it accounts for the temporary differences between the accounting and tax bases of assets and liabilities. The Accounting Standard adopts a full-provision statement of financial position approach to accounting for tax.
It is assumed that the recovery of all assets and the settlement of all liabilities have tax consequences and that these consequences can be estimated reliably and are unavoidable.
The main reason why deferred tax has to be provided for is that International Financial Reporting Standards (IFRS) recognition criteria are different from those that are normally set out in tax law. Thus there will be income and expenditure in financial statements that will not be allowed for taxation purposes in many jurisdictions.
A deferred tax liability or asset is recognized for future tax consequences of past transactions. There are some exemptions to this general rule.
DEFINITIONS OF KEY TERMS
Tax base. Value that the Standard assumes that each asset and liability has for tax purposes.
Temporary differences. Differences between the carrying amount of an asset and liability and its tax base.
The belief is that an entity will settle its liabilities and recover its ...

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