Financial Reporting Standard 12 Income Taxes

Financial Reporting Standard 12 Income Taxes

When it comes to accounting, the main goal of the Financial Reporting Standard 12 is to give guidelines on handling income tax. The significant problem with accounting for income taxes is that we need to know how to recognise the future and current effects of the following using double entry accounting:

  • The transactions of the current duration that are acknowledged in the financial statements of the business
  • The recovery or future settlement of the carrying amount of assets or liabilities that are recognised in the financial statement of the company.

According to FRS 12, the income taxes consist of all foreign and domestic taxes according to the taxable profits (Also see How does business maintain tax records?). Besides, the income taxes consist of withholding taxes; these taxes are paid by an associate or a subsidiary.

The FRS 12 does not handle the accounting method for financial investment tax credits or federal government grants. Nonetheless, the FRS 12 prescribes the best accounting for temporary variations that might develop from such grants financial and investment tax credits.

According to FRS 12, the tax of an asset is the quantity that is deductible for tax factors versus the taxable financial advantages that will stream into the business (Also see FRS 11 Construction Contracts). In some cases where the economic benefits are not taxable, the carrying amount of the asset is comparable to its tax base.

The current unsettled tax for current and previous durations need to be acknowledged as liabilities when preparing the financial statements. The excess will be viewed as an asset if the tax paid for current and previous durations exceeds the quantity unpaid for the same durations. The FRS 12 prescribes the correct method to identify various tax assets and varied tax.

No matter the size of the business, every service in Malaysia need to compute and report the income taxes based on the FRS 12 (Also see How tax benefit the foreigners to invest in Malaysia).

Different elements of income tax are acknowledged in financial declarations relying on the situations how they occur. For instance, if the carrying quantity of goodwill in a company combination is higher than the tax base, the variation will result in varied tax liability. Hence, you need to understand the FRS12 in order to manage the income tax in your company’s financial statements. If you are still unsure about it, you may contact any accounting services in Johor Bahru for further guidance.

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