In the Notes To The Accounts in the financial statement, we see the term Income Tax expense.

This article discuss what is in the Income Tax Category which includes Current Tax Payable and Deferred Tax.

The Income Tax expense comprises the sum of both the tax current payable and Deferred Tax.

TAX CURRENTLY PAYABLE

1. Based on taxable profit for the period
2. Taxable profit differs from net profit as reported in the Income Statement because it excludes:

• items of income and expense that are taxable or deductible in other years and

• also excludes income statement items that are never taxable and deductible

DEFERRED TAX

1. Is the tax EXPECTED to be payable or recoverable due to:

• differences between the carrying amounts of assets and liabilities in the financial statements and

• the corresponding tax bases used in the computation of taxable profit

2. Deferred tax is accounted for using the Balance Sheet Liability Method.
3. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realized.
4. Deferred tax is charged or credited in the income statement except when it relates to items charged or credited directly to equity in which case the deferred tax is also dealt with in equity.

In Deferred Tax we have the

(a) DEFERRED TAX LIABILITIES:

• Are generally recognize for all taxable temporary differences

(b)DEFERRED TAX ASSETS:

• Are recognized to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilized.
• For deferred tax asset, the carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the assets to be recovered.

Deferred tax liabilities & deferred tax assets are not recognized if the temporary differences arises from:

• Goodwill(or negative goodwill) or

• From the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit

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