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ACCOUNTING FOR INCOME TAX
ABSTRACT
This assignment aims at explaining the treatment of the income tax as per the income tax (IT) law in the books of the company. There is a difference in the computation of profits by two methods as per two different laws which therefore creates a difference and hence can be treated differently by different companies. Therefore for a standardized treatment of the same, various accounting and reporting standards were introduced by the (AASB)Australian Accounting Standard Board and other bodies. For the treatment of income tax in the books, ASSB 112 and IAS 12 are used by the corporations in the financial reporting.
    Serial Number
    Contents
    Page Number
    1.
    Introduction
    1
    2.
    Definitions
    2-3
    3.
    Criteria for Recognition of deferred tax asset and deferred tax liability
    4
    4.
    Tax Expense In The Latest Financial Statement
    5
    5.
    Comparison Of Tax Expense As Per Taxable Income And Accounting Income
    6
    6.
    Recognition Of Deferred Tax Assets(DTA) Or Liabilities As Reported In The annual report
    7
    7.
    Recognition Of Tax Assets or Income Tax(IT) Payable As Recognized By The Company
    8
    8.
    Comparison Of Tax Amount Shown In The financial performance And Cash Flow Statement(CFS)
    9
    9.
    Concept Of Temporary Difference And Permanent Difference
    10
    10.
    Insights
    11
    11.
    Conclusion
    12
    12.
    References
    13-14
INTRODUCTION
Woolworths Group Limited is an Australian based company involved in the business of supermarket chains and also has its operations in New Zealand. The company ranks seconds in the level of revenue after Wesfarmers in Australia and also in New Zealand. It ranks first in the liquor retailer in the country along with being the largest gaming operator and the hotel chain in Australia. The company established in the year 1924 and has been diversifying in different verticals and has been expanding ever since. The company has a team of more than 196000 members and a total of 3292 stores all over. On average the company serves more than 30 million customers per week. Woolworths generated a free cash flow of $941 million during the year with a normalized return on funds employed was 24.2% in the year. The company paid a tax amount of $744 million during the year and paid a dividend per share of 102 cents. The company earned a profit before interest and tax was $2,724 million during the year.
DEFINITIONS
· ACCOUNTING PROFIT:
It is calculated as per generally accepted accounting principles(GAAP) which refer to the total earning of the company. In simple terms, it is the income of the company after deducting all the costs from the total revenue of the company. Explicit costs are operating expenses such as labor costs, cost of distribution, cost of production, depreciation, interest, and taxes (Laux, R.C., 2013). Accounting profit also called bookkeeping profit or financial profit.
· TAXABLE PROFIT:
It is calculated as per the prescribed tax rules. It is calculated by adding non-allowable expenses and deducting allowable expenses and incomes credited in profit & loss account from accounting profit. It is the amount of income on which income tax for the year is calculated (Harrington, C., Smith, W. and Trippeer, D., 2012). Taxable profit is generally different from accounting profit as it is calculated from a taxation point of view.
· TEMPORARY DIFFERENCE:
This is the difference between the amount of profit on which income tax(IT) is calculated and the amount of book profit as shown in the annual financial report. This difference can be either deductible or taxable. A deductible temporary difference is a temporary difference that will yield an amount that can be deducted in the future when determining taxable profit or loss. A taxable temporary difference is a temporary difference that will yield a taxable amount in the future when determining taxable profit or loss (Colley, R., Rue, J., Valencia, A., and Volkan, A., 2012). In both cases, the differences are settled when the carrying amount of the asset or liability is recovered or settled.
· TAXABLE TEMPORARY DIFFERENCE:
In the situation wherein the book financial earnings is more than the amount of earnings on which the tax is chargeable as per the income tax(IT) laws. As the amount of books financial profits is more, the amount of tax on the books financial profit will be more than the amount that is actually payable to the government authorities by the company. Therefore in the present year, the company has to pay less tax and in the coming future years, the same reverses and excess tax will be paid. (Wahab, N.S.A. and Holland, K., 2015).
· DEDUCTIBLE TEMPORARY DIFFERENCE:
In the situation wherein the book financial earnings is less than the amount of earnings on which the tax is chargeable as per the income tax(IT) laws. As the amount of books financial profits is less, the amount of tax on the books financial profit will be less than the amount that is actually payable to the government authorities by the company. Therefore in the present year, the company has to pay excess tax and in the coming future years, the same reverses and excess tax will be paid (Mullinova, S. and Simonyants, N., 2016). This excess tax is called DTA.
· DEFERRED TAX ASSETS:
As discussed in the deductible temporary difference, when the amount of tax as per the IT(Income Tax) laws is more than the amount of tax determined on books financial profits, then the corporation has to pay more tax than expected in the present year. This excess payment of income tax in the present year will give future economic benefits by the way of reduction of payment of income tax(IT) when the difference is reversed. Therefore the DTA will be recorded in the books.
· DEFERRED TAX LIABILITY:
As discussed in the taxable temporary difference, when the amount of tax as per the IT(Income Tax) laws is less than the amount...