By writing this report I would like to introduce the reader into the topic of deferred taxes by using the International Accounting Standard 12. Therefore I would like to introduce you into the topic deferred taxes by giving you the theoretical basic concept of deferred taxes. The theoretical basic concept of deferred taxes should give you the idea and a definition of deferred taxes. Afterwards I would like to present the different causes for creating deferred taxes. The causes for creating deferred taxes will be emphasized by give examples. For a better understanding I would like to explain in the following the steps the methods of determination. You have to know that the IAS determines the deferred taxes by using the temporary concept. Because I would like to underline the differences I will present in short form the timing concept too. The temporary concept includes the timing and the temporary differences and excludes the permanent differences. Now we have to find a definition for each type of difference. If we know the idea of deferred taxes and we know how to determine them, we will be interested in the evaluation of deferred taxes. Therefore I will describe the liability method used by IAS and to show the differences I will describe the deferred method. For a better understanding I would like to conclude my report by giving the different way of calculation deferred taxes by using the deferred method and the liability method.
Table of Contents
1. Theoretical basic concept for deferred taxes
2. Causes for deferred taxes
3. Methods of Determination
4. Types of differences
4.1 permanent differences
4.2 Temporary differences
4.3 Timing differences
5. Evaluation Method
5.1 Liability method
5.2 Deferred method
5.3 Comparison of calculation of deferred taxes by using the deferred-method and by using the liability method
5.3.1 Explanation of the first period: deferred method
5.3.3 Accounting records for deferred method and liability method
Objectives and Topics
This report aims to introduce the concept of deferred taxes under International Accounting Standard (IAS) 12, focusing on the identification of differences between financial reporting and tax base, and the comparison of different evaluation methods.
- Theoretical foundation of deferred taxes
- Categorization of permanent, temporary, and timing differences
- Operational differences between the liability method and the deferred method
- Practical calculation examples of tax deferral across multiple periods
- Accounting entries for deferred tax assets and liabilities
Excerpt from the Book
3. Methods of Determination
If the accrual of deferred taxes is fixed on differences, which arise affecting net income and which could be solved affecting net income, we have a perception on the profit commission statement. The perception on the profit commission statement is also called timing concept. The timing concept focuses on the timing differences and excludes the temporary differences. The timing is mainly used for deferred taxes out of the German Commercial Code.
IAS uses the temporary concept. This concept concentrates on the balance sheet. The consequence is that you have regularly differences in each position in your balance sheet, which result into differences between the reporting base and the tax base of each position in your balance sheet. The interest of the temporary concept is to investigate the right tax- assets and tax-liabilities on a special balance sheet key date. Out of this aim, it is unimportant to know if the differences, which arise affecting net income also solve affecting net income. It's only important to know that the temporary concept includes not only the timing differences and excludes the permanent differences. It includes also the temporary differences.
Summary of Chapters
1. Theoretical basic concept for deferred taxes: Defines deferred taxes as resulting from temporary differences between carrying amounts in financial statements and tax balances.
2. Causes for deferred taxes: Distinguishes between primary differences in individual financial statements and secondary differences arising from consolidation processes.
3. Methods of Determination: Compares the timing concept used in the German Commercial Code with the balance-sheet-oriented temporary concept utilized under IAS.
4. Types of differences: Elaborates on the classification and characteristics of permanent, temporary, and timing differences.
5. Evaluation Method: Analyzes the mechanics of the liability method and the deferred method, providing a step-by-step comparison of tax calculations and accounting entries.
Keywords
Deferred taxes, IAS 12, temporary differences, timing differences, permanent differences, liability method, deferred method, accounting standards, tax base, reporting base, balance sheet, financial statement, tax expense, consolidation, equity capital.
Frequently Asked Questions
What is the core subject of this report?
The report provides an introduction to the topic of deferred taxes specifically in accordance with the International Accounting Standard 12 (IAS 12).
What are the primary thematic areas covered?
The paper covers the theoretical concepts of deferred taxes, the causes for their creation, methods of determination, types of accounting differences, and their evaluation.
What is the main objective of the research?
The objective is to provide the reader with a clear definition of deferred taxes, explain how to determine them, and compare the evaluation results between the liability method and the deferred method.
Which scientific methods are employed?
The author uses a comparative analysis method, evaluating theoretical concepts and applying them to practical multi-period calculation tasks to demonstrate differences in outcome.
What does the main body of the text discuss?
The main body examines the classification of differences (timing vs. temporary), explains the IAS temporary concept, and details the calculation steps for both the liability and deferred methods.
Which keywords best characterize this work?
Key terms include Deferred taxes, IAS 12, temporary differences, liability method, and reporting base.
Why does IAS 12 prefer the temporary concept over the timing concept?
IAS 12 focuses on the balance sheet to ensure the correct valuation of tax assets and liabilities on a specific key date, rather than focusing solely on income statement effects.
How does the liability method react to changes in tax rates?
Unlike the deferred method, the liability method adjusts the deferred tax amounts in the balance sheet if the rate of taxation changes after the initial recognition.
- Arbeit zitieren
- Nadin Schäfer (Autor:in), 2005, Deferred taxes in IAS 12, München, GRIN Verlag, https://www.hausarbeiten.de/document/48204
