Objective of PAS 12
The objective of PAS 12 is to prescribe the accounting treatment for income taxes. The principal issue in accounting for income taxes
... [Show More] is how to account for the current and future tax consequences of:
a. The future recovery or settlement of the carrying amount of assets or liabilities that are recognized in an entity’s statement of financial position; and
b. Transactions and other events of the current period that are recognized in an entity’s financial statements.
Any differences that could possibly arise from varying treatments of PFRS and Philippine tax laws for assets, liabilities, income and expenses shall be properly accounted for and disclosed.
Accounting Income vs Taxable Income
Accounting Income/Financial Income Taxable Income
Net income for the period before deducting
income tax expense Excess of taxable revenue over tax deductible
expense and exemptions for the period
Income appearing on the traditional income statement and computed in accordance with accounting standards or determined using
PFRS Income appearing on the income tax return and computed in accordance with the income tax law or as prescribed by the Bureau of
Internal Revenue
The differences between accounting income and taxable income may be classified into permanent differences and temporary differences.
Permanent Differences vs Temporary Differences
Permanent Differences Temporary Differences
Items of revenue and expense which are included in either accounting income or taxable income but will never be included in
the other Include timing differences (items of income and expenses which are included in both accounting income and taxable income but at
different time periods)
Pertain to nontaxable revenue and nondeductible expenses Differences between the carrying amount of an asset or liability and its tax base
Carrying amount pertains to the amount presented on the statement of financial position while Tax base is the amount
attributable for tax purposes.
Do not give rise to deferred tax asset and liability because they have no future tax
consequences Give rise either to deferred tax liability (DTL) or deferred tax asset (DTA) and have future
tax consequences
Nontaxable revenue: Income already subjected to final tax (interest income on time or savings deposits; interest revenue from
government bonds, treasury bills, or municipal Taxable temporary differences result in future taxable amount in determining taxable income of future periods when the carrying amount of
the asset or liability is recovered or settled. [Show Less]