IAS 12 Income Taxes:

Permanent Deferred Tax:

-There is NO timing matter (it's PERMANENT)

- No deferred tax is calculated in respect of permanent difference.

- Calculate the tax on the TAXABLE profit ( provided that there is no temporary deferred tax)



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Example - Permanent differences:

Net Profit = 100
Government grant (tax free) :20
Tax fine:10

The above items cause PERMANENT differences.

So taxable profit is:
Net Profit:100
Add back :
Tax fine:10
Less:
Government grant:20
Taxable Profit=90

Note:
1- there is NO deferred tax on PERMANENT differences.
2- Permanent difference is not clearly mentioned in IAS 12.

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@MansoorMizbani

QUESTION⁉️

At the end of 1st year :
Revenue (based on accounting standards) = 100.000
Revenue ( Tax-based ) = 80.000
The difference is because of temporary tax differences.
Tax rate = 10%

calculae the DEFERRED TAX ?

ANSWER ✅
(100.000-80.000) * 10% = 2.000

Dr Tax expense (SoPoL) 2.000
Cr Deferred Tax Liability (SoFP) 2.000

SoPoL = Statement of Profit or Loss
SoFP = Statement of Financial Position


Note:
1 - TEMPORARY deferred tax is due to TIMING difference.
2 - More income (based on accounting standards) causes to DEFERRED TAX LIABILITY.
3 - The entry is SMOOTHING the income over the affected YEARS.

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@MansoorMizbani
@ACCAIrann