IAS 12 - Accounting for Income Taxes (Basics)

A course covering the basic principles of IAS12 - Accounting for Income Taxes with a focus on mastering Deferred Tax.
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  • Lectures 17
  • Length 4.5 hours
  • Skill Level All Levels
  • Languages English
  • Includes Lifetime access
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About This Course

Published 5/2014 English

Course Description

A review of the key concepts and principles of International Accounting Standard 12 (IAS12) on Accounting for Income Taxes, with a focus on accounting for Deferred Tax.

The course includes theoretical principle lectures include a high level conceptual summary of deferred tax and lectures to get an understanding of the tax base definitions. These principles are then illustrated practically in class examples that focus on journalising the recognition and measurements principles contained in the standard.

You will need to download the lecture slides and work through the lecture videos and the class examples.

The course is structured to assist three categories of delegates who require knowledge of International Financial Reporting Standards (IFRS):

  • Students studying accounting at university;
  • Candidates studying to pass board and professional exams;
  • Professionals looking to keep up to date with continuing professional education.

The Tabaldi approach is practical and our lecturers focus on making the sometimes complex principles of financial reporting simple and practical.

You will need to engage with the lecturer with pen in one hand and calculator in the other, mental application and a proactive approach will ensure that you master this topic under financial reporting and accounting.

Deferred tax is a topic that appears to require some form of dark magic to understand, but once you understand the core principles the calculations and disclosures become logical and principle driven!

Please note that this course does not cover more advanced topics such as deferred tax on capital gains assets, changes in tax rates nor carryforward of unutilised tax losses. these will be covered in subsequent courses on deferred tax.

What are the requirements?

  • A strong understanding of the debits and credits behind accounting
  • An intermediate knowledge of financial reporting and basic corporate income tax

What am I going to get from this course?

  • To master an understanding of the principles behind deferred taxation.
  • By the end of the course you will be able to apply the principles to financial statement disclosures for current and deferred tax expense and balances.
  • By the end of this course you will understand the workings underlying accounting and tax permanent differences, as well as the IAS 12 exempt differences in accounting for income taxes.
  • This course will assist you in calculating the temporary differences and deferred tax on some of the most common accounting balances such as PPE, provisions, prepaid expenses and allowance for credit losses on trade receivables.

Who is the target audience?

  • Students studying accounting at university
  • ACCA candidates
  • CIMA candidates
  • Professional accountants for continuing professional education / development
  • Candidates sitting for professional accounting exams
  • Financial analysts that need to understand how income taxes affect earnings and financial statements
  • CFA (Chartered Financial Analysts) battling to understand the impact of deferred tax on financial analysis

What you get with this course?

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Section 1: Notes Download and Overview
Introduction and guidance (Read)
99 pages

Click the above heading link to download the IAS 12 Accounting for Income Taxes (Basics) lecture handout notes and summaries to download for lecture video completion.

Please note that the layout is set as one slide per page, and for printing it may be cost beneficial to print multiple slides per printed page and to print back to back.


A high level introduction to the key concepts underlying IAS 12 and why deferred tax exists. You will need to have a strong understanding of the Conceptual Framework for Financial reporting, especially the accrual concept. Remember that Assets embody future economic benefits and Liabilities are future outflows of resources embodying economic benefits.

Section 2: Tax base definitions - deferred tax calculation

A basic working example video of the calculation of deferred tax balances using the Statement of Financial Position Approach (SOFP), as well as illustrating the effect on the current tax computation and income tax expense which consists of both current tax expense and deferred tax expense.

This illustration does NOT include permanent or reconciling tax items in order to simplify the central understanding of deferred tax as a starting point.


A video lecture covering the underlying definition for the tax base of an asset. This video gives you the logical thought process behind the definition, as well as a practical illustration to ensure that you can master this in a practical situation.

For those of you wanting a set of rules rather than relying on underlying principles, we give you some basic rules to remember when classifying deferred tax balances as liabilities or assets.


A video lecture covering the underlying definition for the tax base of a Liability. This video gives you the logical thought process behind the definition, as well as a practical illustration to ensure that you can master this in a practical situation.

For those of you wanting a set of rules rather than relying on underlying principles, we give you some basic rules to remember when classifying deferred tax balances as liabilities or assets.


A video lecture covering the underlying definition for the tax base of a Income received in advance. This video gives you the logical thought process behind the definition, as well as a practical illustration to ensure that you can master this in a practical situation.

For those of you wanting a set of rules rather than relying on underlying principles, we give you some basic rules to remember when classifying deferred tax balances as liabilities or assets.

Section 3: Disclosures and current tax computation

Starting with the end in sight. The end goal of all of these workings is to calculate the figures for disclosing the relevent information for users of the financial statements.

This video takes you through the required disclosures for the income tax expense (profit or loss and other comprehensive income) as well as the tax balance (financial position) disclosures.

We supply you with suggested disclosures and formats for your current and deferred tax disclosures. Understanding the end goal is vital to applying your workings correctly. The three central components of disclosure included in this video are:

  1. Income tax expense: Major components of income tax expense
  2. Income tax expense: Tax rate reconciliation
  3. Analysis of deferred tax balance

This is not a course on income tax legislation, but a course on how to account for the current tax (tax in line with legislation) as well as the deferred tax expense and balances.

The current tax computation is a vital part of calculating the current tax expense in line with local tax legislation, but can also assist in reconciling to total tax expense (current and deferred). The current tax computation starts with the accounting profit before tax and ends with taxable income (tax profit) on which you will calculate the current tax expense.

Please note that this lecture ignores the implications of capital gains tax which requires a separate calculation.

Section 4: Examples illustrating common temporary differences

This video contains an illustrative example that explains the deferred tax workings underlying the temporary differences arising from Property, Plant and Equipment.

These temporary differences include differences between accounting depreciation and tax depreciation (wear and tear or capital allowances for tax), and accounting profit on sale versus tax recoupments..

We have ignored the implications of capital gains as this will be dealt with separately as a more advanced topic within deferred tax.


This video instills a deeper understanding of the different outcomes of the deferred tax component of liabilities and provisions. Remember the accrual concept!

Although a provision is recognised as a liability on the statement of fnancial position, the timing of the related tax deduction is usually different to the timing of the related accounting expense.

This video uses a comparative illustration to make sure you are comfortable with this fundamental difference in the related deferred tax workings.


This video example covers the deferred tax consequences arising from the temporary difference due to prepaid expenditure .

Remember that for taxable income you will generally deduct the amount when paid, which is not necessarily the same period in which the expenditure is recorded in Profit or Loss.


This video illustrates how to deal with income received in advance from a deferred tax point of view. Remember that the tax base definition for income received in advance is NOT the same as the tax base definition for a liability!

This video assumes that the tax legislation includes receipts as taxable income when the cash is received, which may not be in the same period in which you recognise revenue in line with IFRS!


The example in this video illustrates a somewhat complex example relating to trade receivables (debtors). Although Gross Debtors does not in itself result in temporary differences, any impairment allowance to the trade receivable will create a temporary difference and therefore deferred tax.

Work through this example in detail, if it confuses you remember to go back and review the tax base definition videos.

Section 5: Permanent differences, exemptions and over/ under provision

This video covers the principles underlying the permanent differences between tax and accounting treatments. That is to say, when accounting expenses are non deductible (can never be deducted) for tax purposes, or alternatively when accounting income is never going to form part of taxable income.

This will result in a distortion of the tax rate, ie the tax expense divided by the accounting profit before tax will not equal the tax rate %. Remember to disclose this in the tax rate reconciliation note. This video will show you how to work with the permanent differences in the tax computation as well as the tax rate reconciliation.


This video lecture covers the principles from IAS 12 regarding exempt differences. Do not confuse this with the permanent differences from the previous lecture.

The best example is the recognition of land that will never be depreciated and will not get tax capital allowances as deductions.

Therefore the acquisition of land results in a transaction that will not affect accounting profit nor tax profit. The problem arises in that land will have a carrying amount, but due to their not being any future tax deductions the tax base will be equal to zero. The difference however is not temporary and will never reverse, therefore the standard IAS 12 makes provision for this by saying that it will be exempt from deferred tax.


This video covers the scenario when the tax assessment received from the tax authorities differs from the current tax expense calculated by you and recorded in the prior year.

Remember that the increase or decrease in tax expense to align with the tax authority assessment is a change in estimate, and in terms of IAS 8 cannot be accounted for in the prior year to which it relates. The change in estimate must be accounted for in the current year, and will therefore be part of the tax rate reconciliation.

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Instructor Biography

Tabaldi Accounting Education, Accounting and Financial Reporting specialists

Tabaldi Education is an organisation that specialises in Accounting and Financial Reporting training and consulting.

Our lecturing team at Tabaldi consists of a group of highly qualified Chartered Accountants who have lectured at undergraduate and postgraduate level, as well as having presented professional accounting training around the world.

Richard Starkey one of Tabaldi's leading lecturers has had years of experience lecturing and consulting for large international corporates, including the big four audit firms within South Africa. Listed companies in Europe, Africa and the Middle East. Richard is passionate about helping people master the basic principles of financial reporting, and takes an interactive journal driven approach to his lectures.

Instructor Biography

Instructor Biography

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