Page 49 - FINAL CFA I SLIDES JUNE 2019 DAY 8

Session Unit 8:

30. Income Taxes, p.245
LOS 30.a: Describe the differences between accounting profit and taxable income and define key terms, including
deferred tax assets, deferred tax liabilities, valuation allowance, taxes payable, and income tax expense. p.245

Financial accounting reporting Tax (Return) Reporting

e.g. different tax base –straight line depreciation Double-declining balance

Tax Return Terminology:

• Taxable income -income subject to tax, based on the tax return.
tanties
• Taxes payable -tax liability caused by taxable income -also known as current tax expense, but do not
confuse this with income tax expense (see below).
• Income tax paid -actual cash flow for income taxes including payments/refunds from prior years.
• Tax loss carry forward - current or past loss that can be used to reduce taxable income (thus, taxes
payable) in the future. Can result in a deferred tax asset.
• Tax base. Net amount of an asset or liability used for tax reporting purposes.
• Accounting profit -Pretax financial income based on financial accounting standards (EBT/PTI).

• Income tax expense -Expense recognized in the income statement that includes taxes payable and
changes in deferred tax assets and liabilities (DTA and DTL);
• Deferred tax liabilities -Balance sheet amounts that result from an excess of income tax expense over
taxes payable that are expected to result in future cash outflows.
• Deferred tax assets - Balance sheet amounts that result from an excess of taxes payable over income tax
expense that are expected to be recovered from future operations.
• Valuation allowance -Reduction of deferred tax assets based on the likelihood the assets will not be
realized.