Current tax: liability, instalments and loss carry-back

Learning objectives

• Calculate current tax from accounting profit and the tax adjustments in the case.L1, L2
• Recognise current tax, instalments paid and the balance (current tax liability or asset).L1, L2
• Determine and recognise the asset arising from the carryback of a tax loss.L2, L3

Normative references

• IAS 12 §12Current tax for current and prior periods is recognised as a liability to the extent unpaid; if the amount already paid exceeds the amount due for those periods, the excess is recognised as an asset.
• IAS 12 §13The benefit relating to a tax loss that can be carried back to recover current tax of a previous period is recognised as an asset.
• IAS 12 §14That asset is recognised in the period in which the tax loss occurs, because it is then probable that the benefit will flow to the entity and the benefit can be reliably measured.
• IAS 12 §46Current tax liabilities (assets) for the current and prior periods are measured at the amount expected to be paid to (recovered from) the taxation authorities, using the tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

28 questions

• A subsidiary of the Astrenor group is subject, in its country, to a qualified domestic minimum top-up tax arising from enacted Pillar Two legislation. The group's tax specialists have computed the top-up tax due for the year (amount given in the case, not yet paid). How should it be treated in the subsidiary's financial statements?L2
• At the reporting date, the part of current tax for the period that has not yet been paid is recognised as a liability.L1
• Where the instalments paid for the period exceed current tax for that period, the excess is recognised as an expense.L1
• The benefit of a tax loss carried back against the tax of a prior period is recognised only when the tax authorities refund the tax.L2
• Current tax for the period is measured using the tax rates and tax laws enacted or substantively enacted by the end of the reporting period.L2
• On what amount is the current tax for a period computed?L1
• For Lanvérac, the tax rate applicable to profits for the year ended 31 December 20X5 is 28%. In February 20X6, before the financial statements are authorised, Parliament adopts a 25% rate applicable retroactively to 20X5 profits; at 31 December 20X5, this law was neither enacted nor substantively enacted (case data). Which rate should be used for 20X5 current tax?L2
• In 20X5, Pradomir incurs a tax loss which the law (case data) allows it to carry back against its 20X4 taxable profit, with a refund of the tax paid. When does it recognise the related asset?L2
• Ormessan paid instalments of 210,000 for the year; current tax for the year amounts to 190,000. What does it present at the reporting date in respect of this tax?L2
• Tavernol makes an accounting profit of {accounting_profit}. Tax law (case data) requires {add_backs} of non-deductible expenses to be added back and allows {deductions} of exempt income to be deducted. The rate enacted at the reporting date is {tax_rate}%. Compute taxable profit and current tax.L1
• The hotel group Clairmonde (an entity taxed on its own) reports accounting profit of {accounting_profit}. It recognised {non_deductible_expenses} of non-deductible entertainment costs and {exempt_dividends} of exempt dividends received (case data). With an enacted rate of {tax_rate}%, what are its taxable profit and current tax?L2
• Bellefosse's current tax for the year amounts to {current_tax}; it paid instalments of {instalments_paid} during the year. What current tax liability does it present at the reporting date?L2
• In 20X5, Vauclerc incurs a tax loss of {tax_loss}. Tax law (case data) allows it to carry the loss back against its 20X4 profit, taxed at {prior_year_rate}%, up to the tax paid for 20X4, i.e. {prior_year_tax_paid}. What asset does it recognise in its 20X5 financial statements?L2
• The dairy cooperative Fonsalve records a tax loss of {tax_loss} in 20X5. The legislation (case data) allows a carryback only against 20X4 taxable profit, which amounted to {prior_year_taxable_profit} taxed at {prior_year_rate}%; the rest of the loss can be carried forward. Compute the carryback asset recognised in 20X5 and the loss still to be carried forward.L3
• Merisande's taxable profit is {taxable_profit}. The rate applicable to profits for the year, enacted at the reporting date, is {enacted_rate}%. A bill providing for {proposed_rate}% for future years is under discussion, neither enacted nor substantively enacted (case data). Compute current tax for the year.L2
• The Ravignac foundry paid no instalments; its current tax for the year, computed at the reporting date, amounts to {current_tax}, payable next year. Record the closing entry.L1
• The IT services subsidiary Neuvary, taxed separately, reports taxable profit of {taxable_profit}; the rate enacted at the reporting date is {tax_rate}%. No instalments were paid. Recognise current tax for the year.L2
• In June, Arvenais pays {instalment} to the tax authorities as an instalment on tax for the current year, whose amount will be known only at the reporting date. Record this payment.L1
• Javergne incurs a tax loss in 20X5. The law (case data) allows it to carry the loss back and obtain a refund of {carryback_refund} of tax paid for 20X4; the claim will be filed in 20X6. Record the entry in the 20X5 financial statements.L2
• The logistics subsidiary Ombrevaux, taxed separately, incurs a 20X5 tax loss of {tax_loss}, which can be carried back in full against its 20X4 taxable profit, taxed at {prior_year_rate}% (law in the case; the tax paid for 20X4 amply covers the refund). The refund will be received in 20X6. Record the 20X5 entry.L3
• Dorvignac reports accounting profit of 500,000. Under tax law (case data), 40,000 of expenses are not deductible. With an enacted rate of 25%, the accountant recognises current tax of 125,000. Where is the error?L2
• Sermaise incurred a tax loss in 20X5 that can be carried back (law in the case), giving a right to a refund of 64,000, certain in principle and amount. It recognised nothing in 20X5 and recognised income of 64,000 in 20X6, when the refund was received. What is the error?L3
• Valdérose is taxed in two countries. In country A, its instalments exceed the tax due by 15,000; in country B, it still owes 40,000. No legally enforceable right allows amounts owed to two different tax authorities to be set off (case data). What does it present at the reporting date?L2
• In 20X5, Quercival incurs a tax loss. The law (case data) allows it to carry the loss back to 20X4 (tax refund) or forward; at the reporting date it elects to carry it back, which gives it a right to a refund of a determined amount. The finance director proposes recognising nothing until the authorities agree. Which analysis should be adopted?L3
• At the end of 20X5, Antrevel still owes 180,000 of current tax for 20X5. In addition, the final 20X4 return, filed in 20X5, shows additional tax of 10,000 not yet paid. What current tax liability does it present at the end of 20X5?L2
• Gavrance has taxable profit of {taxable_profit}, taxed at the enacted rate of {rate}%. During the year, its deferred tax liability increases by {dtl_increase} and its deferred tax asset by {dta_increase}, both movements arising from items recognised in profit or loss. Compute current tax and the total tax expense in profit or loss.L2
• Mazelvane owes {current_tax} of current tax, not yet paid. Its deferred tax movements, all arising from items in profit or loss, are an increase in the liability of {dtl_increase} and a decrease in the asset of {dta_decrease}. Record the tax entries at the reporting date.L2
• Gernasse prepares its 20X5 income tax note: current tax for the year {current_tax}; additional current tax due for 20X4, identified in 20X5 (case data) {prior_year_current_tax}; deferred tax expense {deferred_tax_expense}. Compute the tax expense for the year.L3