hkas12 Income Taxes

HKAS12(November2004)1HongKongAccountingStandard12IncomeTaxesHKAS12(November2004)2ContentsparagraphsHongKongAccountingStandard12IncomeTaxesOBJECTIVESCOPE1-4DEFINITIONS5-11TaxBase7-11RECOGNITIONOFCURRENTTAXLIABILITIESANDCURRENTTAXASSETS12-14RECOGNITIONOFDEFERREDTAXLIABILITIESANDDEFERREDTAXASSETS15-45TaxableTemporaryDifferences15-23BusinessCombinations19AssetsCarriedatFairValue20Goodwill21InitialRecognitionofanAssetorLiability22-23DeductibleTemporaryDifferences24-33InitialRecognitionofanAssetorLiability33UnusedTaxLossesandUnusedTaxCredits34-36Re-assessmentofUnrecognisedDeferredTaxAssets37InvestmentsinSubsidiaries,BranchesandAssociatesandInterestsinJointVentures38-45MEASUREMENT46-56RECOGNITIONOFCURRENTANDDEFERREDTAX57–68CIncomeStatement58–60ItemsCreditedorChargedDirectlytoEquity61-65ADeferredTaxArisingfromaBusinessCombination66–68CurrentandDeferredTaxArisingfromShare-basedPaymentTransactions68A-68CPRESENTATION69–78TaxAssetsandTaxLiabilities69–76Off-set71-76TaxExpense77-78TaxExpense(Income)RelatedtoProfitorLossfromOrdinaryActivities77ExchangeDifferencesonDeferredForeignTaxLiabilitiesorAssets78DISCLOSURE79-88EFFECTIVEDATE89-91APPENDICES:A.ExamplesofTemporaryDifferencesB.IllustrativeComputationsandPresentationC.ComparisonwithInternationalAccountingStandardsHKAS12(November2004)3HongKongAccountingStandard12IncomeTaxes(HKAS12)issetoutinparagraphs1-91.Alltheparagraphshaveequalauthority.HKAS12shallbereadinthecontextofitsobjective,thePrefacetoHongKongFinancialReportingStandardsandtheFrameworkforthePreparationandPresentationofFinancialStatements.HKAS8AccountingPolicies,ChangesinAccountingEstimatesandErrorsprovidesabasisforselectingandapplyingaccountingpoliciesintheabsenceofexplicitguidance.HKAS12(November2004)4HongKongAccountingStandard12IncomeTaxesObjectiveTheobjectiveofthisStandardistoprescribetheaccountingtreatmentforincometaxes.Theprincipalissueinaccountingforincometaxesishowtoaccountforthecurrentandfuturetaxconsequencesof:(a)thefuturerecovery(settlement)ofthecarryingamountofassets(liabilities)thatarerecognisedinanentity'sbalancesheet;and(b)transactionsandothereventsofthecurrentperiodthatarerecognisedinanentity'sfinancialstatements.Itisinherentintherecognitionofanassetorliabilitythatthereportingentityexpectstorecoverorsettlethecarryingamountofthatassetorliability.Ifitisprobablethatrecoveryorsettlementofthatcarryingamountwillmakefuturetaxpaymentslarger(smaller)thantheywouldbeifsuchrecoveryorsettlementweretohavenotaxconsequences,thisStandardrequiresanentitytorecogniseadeferredtaxliability(deferredtaxasset),withcertainlimitedexceptions.ThisStandardrequiresanentitytoaccountforthetaxconsequencesoftransactionsandothereventsinthesamewaythatitaccountsforthetransactionsandothereventsthemselves.Thus,fortransactionsandothereventsrecognisedinprofitorloss,anyrelatedtaxeffectsarealsorecognisedinprofitorloss.Fortransactionsandothereventsrecogniseddirectlyinequity,anyrelatedtaxeffectsarealsorecogniseddirectlyinequity.Similarly,therecognitionofdeferredtaxassetsandliabilitiesinabusinesscombinationaffectstheamountofgoodwillarisinginthatbusinesscombinationortheamountofanyexcessoftheacquirer’sinterestinthenetfairvalueoftheacquiree’sidentifiableassets,liabilitiesandcontingentliabilitiesoverthecostofthecombination.ThisStandardalsodealswiththerecognitionofdeferredtaxassetsarisingfromunusedtaxlossesorunusedtaxcredits,thepresentationofincometaxesinthefinancialstatementsandthedisclosureofinformationrelatingtoincometaxes.GeneralPrinciples•ThisStandarddealswithcurrenttaxesanddeferredtaxes.SomegeneralprinciplesrelatingtothetreatmentofdeferredtaxesinthisStandardaresetoutbelow.•Thefuturetaxconsequencesoftransactionsandothereventsrecognisedinanentity'sbalancesheetgiverisetodeferredtaxliabilitiesandassets,andarecalculatedinaccordancewiththefollowingformulae:Carryingamountsofassetsorliabilities-Taxbasesofassetsorliabilities=TaxableordeductibletemporarydifferencesTaxableordeductibletemporarydifferencesXTaxrates=Deferredtaxliabilitiesorassets•Deferredtaxassetsalsoarisefromunusedtaxlossesthattaxlawallowstobecarriedforward,andarecalculatedinaccordancewiththefollowingformula:UnusedtaxlossesXTaxrates=DeferredtaxassetsHKAS12(November2004)5•ThenotionoftemporarydifferencesiscentraltounderstandingtherequirementsofthisStandard.Ataxabletemporarydifferencegivesrisetoadeferredtaxliability.Adeductibletemporarydifferencegivesrisetoadeferredtaxasset.Ataxableordeductibletemporarydifferenceariseswhenthecarryingamountofanassetoraliabilitydiffersfromitstaxbase.ThemeaningoftaxbaseisofkeyimportancetoapplyingtherequirementsofthisStandard.Taxbaseisdefinedinparagraph5ofthisStandardandisgenerallytheamountthatwouldbeshownasanassetoraliabilityinabalancesheetpreparedfortaxpurposes.Unlikethepracticeinsomeothercountries,itisnotcustomaryinHongKongforentitiestopreparetax-basedbalancesheets.However,thenotionofatax-basedbalancesheetisrelevanttothisStandardandmaybeusedasabasisforworkingpapersdevelopedforthepurposeofimplementingthisStandard.•ThisStandardgenerallyrequiresanentitytorecognis