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Ebook Advanced financial accounting (7th edition): Part 2

(BQ) Part 2 book "Advanced financial accounting" has contents: Business combinations and goodwill, investments and groups, associates and joint ventures, overseas involvement, expansion of the annual report, capital reorganisation, reduction and reconstruction, accounting for price changes, current cost accounting,.and other contents. | chapter Taxation: current and deferred ● ● ● ● SSAP 5 Accounting for Value Added Tax (1974) FRS 16 Current Tax (1999) FRS 19 Deferred Tax (2000) IAS 12 Income Taxes (revised 2000) Introduction The treatment of taxation in financial statements in the UK is regulated not only by the Companies Acts but also by three standards: SSAP 5 Accounting for Value Added Tax (April 1974), FRS 16 Current Tax (December 1999) and FRS 19 Deferred Tax (December 2000). The relevant international standard is IAS12 Income Taxes (revised October 2000). SSAP 5 is probably the shortest and simplest standard one is likely to see. Its message is that Value Added Tax (VAT) should not be included in turnover nor included in expenses overview In this chapter we look briefly at the treatment of current taxation and then, in more depth, at the subject of accounting for deferred taxation. While the former is concerned mainly with the presentation of corporation tax, income tax and overseas taxes in financial statements, the subject of deferred taxation poses a number of conceptual problems and is consequently both more difficult to understand and more controversial. The main issues associated with current taxation concern the presentation of the current tax charge in the financial statements and the treatment of tax credits and withholding taxes. These are addressed in FRS16 Current Taxes, and, in a broadly similar way, in IAS 12 Income Taxes. In the case of deferred taxation, the issues are whether to account for it at all and, if so, in what way. We look first at the perceived need to account for deferred taxation based on the view that taxation is an expense subject to the accruals or matching concept. The argument is that, if there are timing differences, that is differences between the periods in which revenues and expenses are recognised in the financial statements and the periods in which they are included when calculating the tax liability, then the tax expense shown in the financial