Page 33 - Finac1 Test 1 slides - 5. Income Taxes (IAS 12)

INCOME TAXES

Prepayments

• Prepayments are amounts actually incurred in the current

year and therefore tax deductible in terms of section 11(a) of
the Income Tax Act.

• For accounting purposes, however, the amount is not taken

to the statement of profit or loss and other comprehensive
income as a deduction, but is disclosed as a current asset in

the statement of financial position.

• The temporary difference occurs because the amount will be

claimed as a deduction for tax in the current year, but will

only be taken to the statement of profit or loss and other
comprehensive income as an expense in the following year.
The carrying amount will be equal to the amount of the

prepayment and the tax base is Rnil (no amount in the

statement of financial position for tax purposes since it has
already been claimed).

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