Financial Reporting Report: Deferred Tax Assets and Liabilities

This report addresses key aspects of financial reporting, particularly focusing on deferred tax assets and liabilities, guided by the principles of IAS 12. The report begins by explaining the recognition criteria for deferred tax assets and liabilities, referencing the guidelines provided in IAS 12. It then elucidates the circumstances under which deferred tax assets arise, such as deductible temporary differences and unused tax losses. The methodology for measuring deferred tax assets and liabilities, including the relevant tax rate considerations, is also discussed. Furthermore, the report highlights the required disclosures in financial statements to ensure transparency and the options for offsetting deferred tax assets and liabilities. Finally, it outlines exceptions related to the recognition of deferred tax liabilities or assets. The report includes references to relevant academic sources to support the information provided.

Running head: FINANCIAL REPORTING
Financial Reporting
Name of the Student:
Name of the University:
Author’s Note:

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FINANCIAL REPORTING
Table of Contents
Answer to Question 1.................................................................................................................2
Answer to Question 2.................................................................................................................2
Answer to Question 3.................................................................................................................2
Answer to Question 4.................................................................................................................3
Answer to Question 5.................................................................................................................3
Reference....................................................................................................................................4

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FINANCIAL REPORTING
Answer to Question 1
The recognition of deferred tax assets or liabilities depends on the guidelines which
are provided in “IAS 12 Income Tax”. As per “Para 15 of IAS 12” deferred tax liabilities are
recognized for all temporary differences which can be identified in the financial statements
(Iasplus.com. 2020). Similarly the provisions which are stated in “Para 24 of IAS 12” reveals
that deferred tax assets can be recognized for deductible temporary differences, unused taxes
but the same can only is recognized if it is probable that there would be taxable profits which
can be used for the purpose.
Answer to Question 2
The deferred tax assets arises when there are deductible temporary differences or
unused tax losses and even unused tax credits. It is often seen that deferred tax assets arises
when one businesses makes investments in subsidiaries, branches or any kind of joint
agreements which leads to deductible temporary differences which are then portrayed as
deferred tax assets for that period or next period considering the reporting period for the
business.
Answer to Question 3
The tax rate which is applied for the period when the asset was acquired or liability
was settled would be considered for measuring the deferred tax assets or liabilities for the
reporting period (Purina 2016). The tax rate which is applicable in the country is a major
consideration for measuring the deferred tax assets and liabilities for a period (Iasplus.com.
2020). The formula which is used for the purpose of computing the income tax figure which
is to be reported is portrayed below:
Tax ¿ recognise d=Current tax+ Movement ∈deferred tax balances

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FINANCIAL REPORTING
The above formula shows that deferred tax aspects needs to be taken into
consideration for the purpose of reporting income tax for the period.
Answer to Question 4
As per the provisions of IAS 12, proper disclosure needs to be provided in the
financial report so that the transparency is maintained in the reporting framework of a
business. The entity has the option to set off deferred tax assets with the deferred tax
liabilities before presenting the same in the balance sheet of the business (Bauman and Shaw
2016). The entity in order to set off must have the legal right to settle current tax amounts for
the period. The management of the company also needs to provide disclosures some of the
aspects such as temporary differences, rates which is charged in the notes to account section
of the annual report for the entity.
Answer to Question 5
There are three exceptions which is associated with the recognition of deferred tax
liabilities or assets on the basis of temporary differences which are presented below in point
form:
 The liabilities which arises from the recognition of goodwill.
 Initial recognition of asset or liability which is not a result of business combination
and at the time of recognition does not impact accounting or taxable profits for a
business (Badenhorst and Ferreira 2016).
 Liabilities which arises from temporary differences which is mainly due to
investments made in subsidiary, association, branches or any kind of joint ventures
subjected to certain conditions.

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FINANCIAL REPORTING
Reference
Badenhorst, W.M. and Ferreira, P.H., 2016. The Financial Crisis and the Value‐relevance of
Recognised Deferred Tax Assets. Australian Accounting Review, 26(3), pp.291-300.
Bauman, M.P. and Shaw, K.W., 2016. Balance sheet classification and the valuation of
deferred taxes. Research in Accounting Regulation, 28(2), pp.77-85.
Iasplus.com. (2020). IAS 12 — Income Taxes. [online] Available at:
https://www.iasplus.com/en/standards/ias/ias12 [Accessed 28 Jan. 2020].
Purina, M., 2016. Deferred Tax under IAS 12 in the chosen Czech and Russian
companies. Procedia-Social and Behavioral Sciences, 220, pp.382-390.