Taxation Assignment: Analysis of Current and Deferred Tax

This document provides a comprehensive solution to a taxation assignment, focusing on the accounting treatment of current and deferred taxes. The assignment analyzes the calculation of current tax liability and the recognition of deferred tax assets. It includes detailed journal entries for recording both current and deferred tax, along with explanations of the underlying principles and relevant accounting standards (IAS 12). The solution demonstrates how to reconcile profit before tax with taxable profit, considering temporary and permanent differences. It also presents the required disclosures in the notes to the financial statements, including the breakdown of current and deferred tax components. Furthermore, the document provides a working paper that outlines the detailed calculations of current and deferred tax liabilities, including adjustments for permanent differences, and temporary differences. This assignment provides a thorough understanding of taxation, accounting, and financial reporting.

Running head: TAXATION
TAXATION
Name of the Student
Name of the University
Author Note

1
TAXATION
Table of Contents
Answer to Question no 2.................................................................................................................2
Bibliography....................................................................................................................................4
Appendix..........................................................................................................................................5

2
TAXATION
Answer to Question no 2
2.1 –
AS per IAS 12 current tax for the current period will be recorded as a liability for the
amount which is not settled and will be recorded as an asset for the amount which is paid in
excess than the due amount. Therefore, the current tax of 66,600 will be recorded as a liability up
to the amount that has not been settled yet. Current tax will be measured at the value that is
expected to be paid or recovered from tax authorities using the rates and laws which are
applicable to the company as on balance sheet date.
In the given case there is creation of deferred tax asset of 6600 which is being recorded
for “deductible temporary differences.” The deferred tax asset/liability is recorded at the tax rates
which are applicable at the time of asset being realized or when the liability is settled on the basis
of law and taxes rates that are applicable at the end of the reporting period.
2.2
The necessary journal entries for recording current and deferred tax in the financial statements of
Parmesan Limited is as follows and the workings are attached in Appendix –
Parmesan Limited
Journal entries
Particulars Debit Credit
Income Taxes 66,600
Income Tax due 66,600
Deferred Tax 6,600
Income Taxes 6,600

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TAXATION
2.3 –
The above is disclosed in Taxation note in Notes to the Financial Statement as below-
Tax Note
Normal tax 73,200
Current Taxation 66,600
Deferred taxation 6,600
Reconciled as follows -
Profit before tax (amount * tax rate) 75,000
Less: Exempt dividend income (1,800)
73,200

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TAXATION
Bibliography
Mullinova, S. and Simonyants, N., 2016. Reflection of a deferred tax liability in the credit union
reporting according to IFRS (IAS) 12" Income taxes". Modern European Researches, (1), pp.83-
88.

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TAXATION
Appendix
Working-
Calculation of Current and deferred Tax
Particulars Amount
Profit before tax 250,000
Adjust permanent difference
Less: Exempted Dividend Income (6,000)
Adjust Temporary difference
Add : Depreciation 25,000
Add: Rent received in advance (cy) 5,000
Less: Interest Income receivable (20,000)
Less: Wear and Tear (30,000)
Less: Rent received in advance (py) (2,000)
Taxable Profit 222,000
Current Tax (taxable profit*tax rate) 66,600
Deferred Tax (temporary difference* tax rate) 6,600