Page 54 - FINAL CFA I SLIDES JUNE 2019 DAY 8

Lets Double Check Terminology
Session Unit 8:
at the Beginning!:
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 -Recognised in income statement (taxes taxes payable + changes DTLS – changes in DTAs);
• Deferred tax liabilities -income tax expense > taxes payable (‘short pay’), expected to result in cash outflows.
• Deferred tax assets –taxes payable > income tax expense (‘pre-pay’), expected to result from future operations.
• Valuation allowance -Reduction of deferred tax assets based on the likelihood the assets will not be realized.