Question
An asset's carrying amount is $80,000 but its tax base is $60,000 because tax depreciation is faster. With a 25% tax rate, the entity recognizes:
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IAS 12 — Income Taxes
Current tax is the amount payable on the period's taxable profit; deferred tax arises from temporary differences between the carrying amount of an asset or liability and its tax base. Identify the temporary difference first, then apply the rate expected when it reverses.
Common mistakes
- Treating a permanent difference as though it created deferred tax — only temporary differences do.
- Using the current year's tax rate when an enacted future rate applies to the reversal.
- Presenting a deferred tax balance as current — under IAS 1 it is always non-current.
IFRS vs US GAAP: Deferred tax assets under US GAAP use a valuation allowance; IFRS instead recognises only to the extent recovery is probable.
Further readingIAS 12: deferred tax explained