Income Tax (IAS12) Essay Example | Topics and Well Written Essays - 1500 words

Income Tax (IAS12) - Essay ExampleTheir main agenda was to look at critical issues of accounting for corporate income in an attempt to develop a discussion paper on the principles of IAS 12 and set out proposals. IAS 12 prohibits companies to give an account to deferred taxes by using the recession method based on the income statement. It instead prefers the passive methodology based on the balance sheet. In addition to the above exigency, the standard requires corporations to acknowledge every a deferral tax liability. Thirdly, IAS 12 requires recognition of deferred tax assets when it is certain that a corporation possess revenues in future to realize deferred tax asset. For instance, given up that a friendship has a history of losses it will recognize deferred tax assets to the extent that taxable temporary expenses in amounts are sufficient. Fourthly, IAS 12 does non allow asset credit and delayed tax liabilities brought about by types of material goods and liabilities whose books vary in amounts at the moment of acknowledgment (IAS - 12). The other requirement is that IAS 12 prohibits recognition of deferred tax liabilities, and those liabilities encountered or arising from adjustments for conversion so long as it satisfies two conditions The main investor is capable of controlling the timing of reversals temporary difference. ... It however prohibits recognition of deferred tax liabilities because of initial recognition of good will. During revaluation of assets, IAS 12 allows and requires a corporation to recognize deferred tax liabilities in carapace revaluation of asset takes place. Moreover, IAS 12 requires that valuation of assets and deferred tax liabilities based on tax consequences that may arise in a manner that a company expects to recover the amount. The standard also prohibits the deduction of deferred tax assets and liabilities to account for its current value (Kirk, 2005). The IAS 12 further prohibits companies from making distinctions between the current and non-current assets and liabilities in its fiscal reports. It also provides restrictive conditions on debit and credit balances that represent deferred tax assets that could be compensated. This requirement is based on the requirements as stipulated by the monetary assets and liabilities IAS 32, financial instruments disclosure and presentation. It is worth noting that among the new information IAS 12 requires disclosure include That for every class of transient disparity The amounts of assets and tax liabilities recognized and the amount of expenses or income labeled in the income statement with respect to discontinued operations, the realization of deferred tax asset depends on future prospects over the profits coming from reversals of existing impermanent parities. There has been a rise in criticism on financial reporting for income taxes from users and preparers. The criticism is based on the implication of the current and future effects it will have o n cash flows. In their arguments, the users cite accounting requirements as too complex to apply in working out income tax. In