Textbook Notes (368,278)
Canada (161,760)
MGAC02H3 (21)
Daga (10)
Chapter 18

Chapter 18 Notes

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Department
Financial Accounting
Course
MGAC02H3
Professor
Daga
Semester
Fall

Description
Chapter 18 Income Taxes NotesCurrent Income TaxesAccounting Income and Taxable Incomey accounting income is a financial reporting term that is also known as income before taxes income for financial reporting purposes or accounting profit as it is referred to in IAS 12 Income Taxes y it is determined according to GAAP and is measured with the objective of providing useful information to creditors and investors y taxable income on the other hand is a tax accounting term and indicates the amount on which income tax payable is calculated Calculation of Taxable Income Reversing and Permanent Differences y the major reasons for differences between accounting and taxable income are 1 revenues or gains are taxable after they are recognized in accounting income 2 expenses or losses are deductible for tax purposes after they are recognized in accounting income 3 revenues or gains are taxable before they are recognized in accounting income 4 expenses or losses are deductible before they are recognized in accounting income 5 permanent differences which are caused by items that 1 are included in accounting income but never in taxable income or 2 are included in taxable income but never in accounting income Calculation of Current Income Taxes y taxes payable method is one of the methods that is permitted under accounting standards for private enterprises y conceptually the income tax expense reported on the income statement should be directly related to the accounting income that is reported not to the amount that is taxable in the period y therefore another method based on an asset and liability approach to income taxes is required under IFRS and is permitted as the other accounting policy choice under private enterprise standards y this methodthe future income taxes methodstart with the calculation of current income taxes and then adjusts for the effects of any changes in future income tax assets and liabilities and recognizes these effects as future income tax expense FutureDeferred Income Taxes y the basic principle that underlies future income taxes is as follows if the recovery of an asset or settlement of a liability that is reported on the balance sheet will result in the companys having to pay income taxes in the future a future or deferred income tax liability is recognized on the current periods balance sheet y alternatively if the recovery or settlement results in future income tax reductions benefits a future or deferred income tax asset is recognized on the current balance sheetTax Basisy the tax basis or tax base of an asset or liability is similar to a measurement attribute y it is the amount attributed to that asset or liability under the rules established by the tax authorities y tax basis of an asset
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