DEFERRED TAXES – BALANCE SHEET APPROACH – IND AS 12

Ind AS 12 is totally focused on the Balance Sheet approach. It requires recognizing the tax consequences of the difference between the carrying amounts of assets and liabilities and their tax base. Once we are successful in identifying: Tax base of an Asset & Tax base of liability We can easily apply balance sheet approach principles of calculating deferred taxes.
The principles are as follows:
DEFERRED ASSETS
If the Carrying amount of an asset is higher than the tax base, it gives rise to Deferred Tax Liability (DTL).
If the Carrying amount of an asset is lower than the tax base, it gives rise to Deferred Tax Asset (DTA).
DEFERRED LIABILITIES
If the Carrying amount of liability is higher than the tax base, it gives rise to Deferred Tax Asset (DTA).
If the Carrying amount of liability is lower than the tax base, it gives rise to Deferred Liability (DTL).
The tax base of an asset or liability is the amount attributed to that asset or liability for tax purposes.
The tax base of an asset is the amount that will be deductible for tax purposes against any taxable economic benefits that will flow to an entity when it recovers the carrying amount of the asset.
If those economic benefits will not be taxable, the tax base of the asset is equal to its carrying amount.
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