Objective of the standard

Learning objectives

• Explain the principal issue in IAS 12: accounting for the current and future tax consequences of the recovery or settlement of carrying amounts and of the transactions of the period.L1

Normative references

• IAS 12The standard prescribes the accounting treatment for income taxes. Its principal issue is how to account for the current and future tax consequences of (a) the future recovery (settlement) of the carrying amount of assets (liabilities) recognised in the statement of financial position and (b) transactions and other events of the current period recognised in the financial statements. When recovery or settlement of a carrying amount will probably make future tax payments larger (smaller) than they would be if it had no tax consequences, a deferred tax liability (asset) is recognised, with certain limited exceptions.

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

4 questions

• IAS 12 is limited to the tax payable for the year: the future tax consequences of recovering the assets and settling the liabilities in the statement of financial position are outside its objective.L1
• Where recovering the carrying amount of an asset will probably make future tax payments larger than if it had no tax consequences, IAS 12 requires a deferred tax liability to be recognised, with limited exceptions.L1
• What is the principal issue addressed by IAS 12?L1
• Settling a liability in the statement of financial position will probably make the entity's future tax payments smaller than if it had no tax consequences. What does the core principle of IAS 12 require?L1