International Financial Reporting Standards_guide.pdf

Chapter 15 Income Taxes (IAS 12) 181
FIGURE 15.3 Income Difference before Taxes—Engine Works
Tax-Free
Interest Income
Reported on the
Financial
Statement
$100
–
Tax-Free
Interest Income
Reported to
Governemnt
$0
=
Permanent
Difference
$100
Pretax
Income
$3,100
–
Taxable
Income
$800
=
Income
Difference
Before
Taxes
$2,300
Depreciation for
Tax Purposes
$5,200
–
Depreciation for
Financial
Statement
Purposes
$3,000
=
Timing
Difference
$2,200
will be paid in future years because they represent a deferral of taxable income from the current
to subsequent accounting periods (or an acceleration of taxable income from the future
into the current accounting period).
6. The $2,300 difference between pretax income and taxable income is attributable in part to
the $100 of tax-free interest income that will never be taxed, but is included in the Statement
of Comprehensive Income. This is a permanent difference because this income is permanently
excluded from taxation; the amount of tax on it that has to be paid now or in the future
is zero.
7. The $2,200 difference between the $5,200 accelerated consumption depreciation and the
$3,000 straight-line depreciation is a timing (temporary) difference because the taxes that are
saved in the current year are only deferred to the future when the timing differences reverse.
Over the life of the equipment, the total depreciation expense will be the same for income tax
and book purposes. The $2,200 is a reflection of the difference in the amount of the total cost
of the equipment that is allocated to this period by the two methods of accounting for depreciation.
The Statement of Comprehensive Income has a lower depreciation cost than the tax
filing, which results in higher reported income. These differences will reverse over time when
the straight-line depreciation rises above the double-declining balance depreciation.