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Financial year-end closing of 2014
Module #4
„ DEFERRED TAX AND CORPORATION TAX”
Training on accounting and income tax a...
© 2014 EASYAUDIT Sp. z o.o. with its registered office in Gdynia. All rights reserved. December 2014 http://24ivalue.com/....
© 2014 EASYAUDIT Sp. z o.o. with its registered office in Gdynia. All rights reserved. December 2014 http://24ivalue.com/....
© 2014 EASYAUDIT Sp. z o.o. with its registered office in Gdynia. All rights reserved. December 2014 http://24ivalue.com/....
© 2014 EASYAUDIT Sp. z o.o. with its registered office in Gdynia. All rights reserved. December 2014 http://24ivalue.com/....
© 2014 EASYAUDIT Sp. z o.o. with its registered office in Gdynia. All rights reserved. December 2014 http://24ivalue.com/....
© 2014 EASYAUDIT Sp. z o.o. with its registered office in Gdynia. All rights reserved. December 2014 http://24ivalue.com/....
© 2014 EASYAUDIT Sp. z o.o. with its registered office in Gdynia. All rights reserved. December 2014 http://24ivalue.com/....
© 2014 EASYAUDIT Sp. z o.o. with its registered office in Gdynia. All rights reserved. December 2014 http://24ivalue.com/....
© 2014 EASYAUDIT Sp. z o.o. with its registered office in Gdynia. All rights reserved. December 2014 http://24ivalue.com/....
© 2014 EASYAUDIT Sp. z o.o. with its registered office in Gdynia. All rights reserved. December 2014 http://24ivalue.com/....
© 2014 EASYAUDIT Sp. z o.o. with its registered office in Gdynia. All rights reserved. December 2014 http://24ivalue.com/....
© 2014 EASYAUDIT Sp. z o.o. with its registered office in Gdynia. All rights reserved. December 2014 http://24ivalue.com/....
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Module 4_24IVALUE_elearning DEFERRED TAX

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„ DEFERRED TAX AND CORPORATION TAX”
Training on accounting and income tax aspects related to financial year-end closing of 2014. Common errors and fast remedies.

SELF-CHECK OF ACCOUNTING CALCULATIONS
24iValue is an additional tool to traditional consulting in the financial and tax reporting and in many instances it can replace such consulting. See what kind of services are available in 24iValue!

The 24iValue service is not focused on presenting technical aspects, regulations, interpretations, jurisdiction, etc. but places stress on solving accounting and reporting problems.

The 24iValue service is not focused on presenting technical aspects, regulations, interpretations, jurisdiction, etc. but places stress on solving accounting and reporting problems. The support provided to users by 24iValue results from an innovative web application combining a number of financial audit techniques and methods with an expanded systems of tooltips and help.

How to calculate cash flow? How to calculate deferred tax? How to calculate inventory provision? How to calculate provision for debtors?

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http://24iValue.com/

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Module 4_24IVALUE_elearning DEFERRED TAX

  1. 1. . Financial year-end closing of 2014 Module #4 „ DEFERRED TAX AND CORPORATION TAX” Training on accounting and income tax aspects related to financial year-end closing of 2014. Common errors and fast remedies.
  2. 2. © 2014 EASYAUDIT Sp. z o.o. with its registered office in Gdynia. All rights reserved. December 2014 http://24ivalue.com/. • Module 1: Estimates: provision for doubtful debt, inventory provisions, provisions for liabilities • Module 2: Fixed assets: impairment testing of fixed assets, depreciation, accounting for financial leasing • Module 3: Cash flow statement • Module 4: Corporate income tax, recognition of income and expenses – Deferred tax and Corporation tax • 24EasyAudit: Information on the Web application supporting accounting at balance sheet closing for 2014 Content of the training .
  3. 3. © 2014 EASYAUDIT Sp. z o.o. with its registered office in Gdynia. All rights reserved. December 2014 http://24ivalue.com/. Module 4: Deferred tax and Corporation Tax . Do you know that …? It is easier to understand the nature of deferred tax if you treat income tax as a cost and you follow the matching concept of costs and incomes. Income tax is just a cost of 24% of gross profit; however, in fact it is calculated on the taxation base and therefore it is necessary to calculate deferred tax in order to preserve commensurability. Click here to watch a tutorial video
  4. 4. © 2014 EASYAUDIT Sp. z o.o. with its registered office in Gdynia. All rights reserved. December 2014 http://24ivalue.com/. Module 4: Deferred tax and Corporation Tax Theory: • due to temporary differences between the book and tax value of assets and liabilities, it is necessary to calculate deferred tax (IAS 12 , par. 20), • the deferred income tax asset is to be updated subject to the probability of applying negative temporary differences on which the assets were calculated. . Examples of errors • deferred income tax is calculated with the income statement approach instead of the balance sheet approach and thus it is calculated on timing differences and not on temporary differences • certain temporary differences are not identified (e.g. financial leasing, provisions, impairment provisions to fixed assets) • deferred income tax asset is not analysed for probability of application in the future (e.g. possibility to apply tax losses)
  5. 5. © 2014 EASYAUDIT Sp. z o.o. with its registered office in Gdynia. All rights reserved. December 2014 http://24ivalue.com/. Module 4: Deferred tax and Corporation Tax Theory: • deferred tax asset is recognised whenever it is porbable that it will be recovered in the future • deferred tax asset should not be recognised when it is not probable that in the future at least some of the negative temporary differences may be realised . Examples of errors • Overprudency (e.g. 100% of the asset unrecognised) • or conversely – despite major uncertainties as to realization of negative temporary differences, no derecognition of part of deferred tax assets is done • indicators of material uncertainty include e.g. losses generated in the recent years or anticipated losses in the future
  6. 6. © 2014 EASYAUDIT Sp. z o.o. with its registered office in Gdynia. All rights reserved. December 2014 http://24ivalue.com/. Module 4: Deferred tax and Corporation Tax Real life example: • ABC anticipates gross losses for the next 3 years (2015-2017) of about GBP 1 million • for 2018 and 2019 the projected gross profit is GBP 0.3 million annually • as at 31.12.2014 a deferred income tax asset was recognised of TGBP 380 on the tax losses for 2011 and 2012 . Solution – unrecognised deferred tax asset? • There is a major uncertainty of realisation of the deferred income tax asset and derecognition is required in respect of the uncertain amount. Two options are available: • Option 1: provision of 100% of the asset due to high uncertainty => unrecognised amount of TGBP 380 • Option 2: if the profit for 2018 and 2019 is probable, it is reasonable to make an adjustment of the unrecognised deferred tax assset => TGBP 300 x 2 x 24% = TGBP 144 => unrecognised amount of TGBP 236 (380 – 144)
  7. 7. © 2014 EASYAUDIT Sp. z o.o. with its registered office in Gdynia. All rights reserved. December 2014 http://24ivalue.com/. Module 4: Deferred tax and Corporation Tax . 31 Dec 2012 Year 2012 31 Dec 2011 A - 500 000 - B - 15 000 - - 5 000 - C 400 000 150 000 250 000 80 000 (45 000) 125 000 D (150 000) 25 000 (17 5 000) E 330 000 650 000 200 000 Gross profit Permanent differences Deferred tax base / T axation base Positive temprorary differences General inventory provision Entertainment expenses Penalties and fines paid Negative temprorary differences Retirement benefit obligation and similar benefits Excess of net book value of fixed assets over their written down value of capital allowance Year 201431 Dec 2014 31 Dec 2013
  8. 8. © 2014 EASYAUDIT Sp. z o.o. with its registered office in Gdynia. All rights reserved. December 2014 http://24ivalue.com/. Module 4: Deferred tax and Corporation Tax . How to calculate Deferred Tax and Corporation Tax at the same time…? • The above calculation shows how the calculation of Corporation Tax results from calculation of deferred tax (and vice versa) • In order to mitigate the risk of error it is worth combining both calculations. Deferred tax 31 Dec 2012 Corporation tax for 2012 Deferred tax 31 Dec 2011 E 330 000 650 000 200 000 F 24% (156 000) G 24% 79 200 31 200 48 000 H (124 800) Income tax charge in profit and loss account Corporation tax (current tax) Deferred tax base / T axation base Deferred tax asset / Change of deferred tax tax for 201431 Dec 2014 31 Dec 2013
  9. 9. © 2014 EASYAUDIT Sp. z o.o. with its registered office in Gdynia. All rights reserved. December 2014 http://24ivalue.com/. Module 4: Deferred tax and Corporation Tax Quick check of reasonableness of the income tax charge (at Main Rate of corporation tax): • Gross result from the profit and loss account • we adjust permanent differences for the period (permanently non-tax deductible expenses are added and non-taxable income is deducted) • thus we obtain the „nominal taxation base” to be multiplied by „minus 24%”, • which generates the tax at nominal rate If the actual tax = tax at the nominal rate, the risk of error is low . Reasons for the difference • If the actual tax ≠ tax at the nominal rate, the risk of error is high unless the following have been taken into account: • valuation adjustments in the opening balance or closing balance (e.g. unrecognised deferred asset related to tax losses) • adjustment to Corporation Tax for previous years recognised in the current financial year • a part of deferred tax directly in revaluation reserve • If none of the above and if not small profits rate shall be applied, errors are probable in the calculation in Corporation Tax or deferred tax in the opening balance or closing balance (some temporary differences missing, incorrect sign of a temporary difference, arithmetical errors)
  10. 10. © 2014 EASYAUDIT Sp. z o.o. with its registered office in Gdynia. All rights reserved. December 2014 http://24ivalue.com/. Module 4: Deferred tax and Corporation Tax Errors can arise when: • we do not know how to calculate deferred tax • we do not often calculate deferred tax • we want to calculate Corporation Tax tax but we do not have much tax-related knowledge • we calculate Corporation Tax but there is no one who could check the calculation before we declare Corporation Tax liability to the tax office • we do not combine Corporation Tax calculation with calculation of deferred tax (or vice versa). . How will 24iValue calculate deferred tax or Corporation Tax …? • With 24iValue and the embedded auditing techniques you will make sure if the tax in the profit and loss account is reasonable and you will check or calculate the deferred and current tax in a short time • an easy way to check income tax will help you calculate current and deferred income tax correctly even several times faster than so far • Using 24iValue you minimise the risk error in Corporation Tax and deferred tax.
  11. 11. © 2014 EASYAUDIT Sp. z o.o. with its registered office in Gdynia. All rights reserved. December 2014 http://24ivalue.com/. 24iValue helps to check and calculate 24iValue Expert System supports accounting, auditing and consulting in specialized calculations such as: • Cash flow statement (in accordance with IFRS) • Deferred tax and UK corporation tax • Valuation and market value • Valuation of financial instruments • Testing for impairment of fixed assets • Provisions for debtors • Inventory provisions • Provisions for liabilities, including provisions for unused holiday accruals, retirement bonus, warranty expenses • Finance lease . Click here to watch a video Click here to watch a tutorial video
  12. 12. © 2014 EASYAUDIT Sp. z o.o. with its registered office in Gdynia. All rights reserved. December 2014 http://24ivalue.com/. Intellectual property of 24iValue • The 24iValue service, including the graphic and works marks of the Service names (logo), software of the Service as well as all materials and content provided in the Service, graphic solution and all other solutions are subject to copyright in accordance with international law. • The appearance, operating principles and concept of the Service constitute a protected industrial design and are subject to protection in compliance with the Act on industrial property – both for 24iValue.
  13. 13. © 2014 EASYAUDIT Sp. z o.o. with its registered office in Gdynia. All rights reserved. December 2014 http://24ivalue.com/. Contact with 24iValue/24EasyAudit 24EasyAudit Sp. z o.o. ul. Mściwoja 9/10a 81-361 Gdynia KRS 0000374259 NIP 586-226-29-76 REGON 221152658 Kontakt: https://24ivalue.com/pages/contact/ https://24ivalue.com/

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