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Deferred Tax Computation: The Appropriate Tax Rate (part 1) - Education - Nairaland

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Deferred Tax Computation: The Appropriate Tax Rate (part 1) by tuitionyard(m): 7:16pm On Jan 16, 2017
In the computation of deferred tax, applying 30% on the temporary difference to determine the deferred tax is becoming a norm among preparers of financial statements. Am not saying this is wrong, my point is that I think the requirements of paragraph 51 of IAS 12 Income taxes should not be left out before applying any tax rate.

Paragraph 51 of IAS 12 explains that the measurement of deferred tax related to an asset should reflect the tax consequences of the manner in which an entity expects to recover the carrying amount of the asset. Since the carrying amount of an asset may be recovered either through sale, use (or both), it follows that the temporary difference may also take any of those two forms (sale or use).

In Nigeria, the 'use rate' is different from the 'sell rate' hence applying 30% in all cases may not be correct. Sometimes the sell rate of 10% (capital gains tax) may be more appropriate for application on the temporary difference especially where the asset's carrying amount would likely be recovered via sale.

Thanks for reading...

Usidamen Israel

1 Like

Re: Deferred Tax Computation: The Appropriate Tax Rate (part 1) by Onechancearmy(m): 10:36pm On Jan 16, 2017
tuitionyard:
In the computation of deferred tax, applying 30% on the temporary difference to determine the deferred tax is becoming a norm among preparers of financial statements. Am not saying this is wrong, my point is that I think the requirements of paragraph 51 of IAS 12 Income taxes should not be left out before applying any tax rate.

Paragraph 51 of IAS 12 explains that the measurement of deferred tax related to an asset should reflect the tax consequences of the manner in which an entity expects to recover the carrying amount of the asset. Since the carrying amount of an asset may be recovered either through sale, use (or both), it follows that the temporary difference may also take any of those two forms (sale or use).

In Nigeria, the 'use rate' is different from the 'sell rate' hence applying 30% in all cases may not be correct. Sometimes the sell rate of 10% (capital gains tax) may be more appropriate for application on the temporary difference especially where the asset's carrying amount would likely be recovered via sale.

Thanks for reading...



Usidamen Israel


Thanks for dropping knowledge
Re: Deferred Tax Computation: The Appropriate Tax Rate (part 1) by tuitionyard(m): 8:10am On Jan 17, 2017
Thanks

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