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Ebook Financial accounting and reporting (18th edition): Part 2

(BQ) Part 2 book "Financial accounting and reporting" has contents: Taxation in company accounts, intangible assets, construction contracts, accounting for groups at the date of acquisition, earnings per share, analysis of published financial statements, review of financial ratio analysis,.and other contents. | www.downloadslide.com CHAPTER 16 Taxation in company accounts 16.1 Introduction The main purpose of this chapter is to explain the corporation tax system and the accounting treatment of deferred tax. Objectives By the end of this chapter, you should be able to: ● ● ● ● discuss the theoretical background to corporation tax systems; critically discuss tax avoidance and tax evasion; prepare deferred tax calculations; critically discuss deferred tax provisions. 16.2  Corporation tax Limited companies, and indeed all corporate bodies, are treated for tax purposes as being legally separate from their proprietors. Thus, a limited company is itself liable to pay tax on its profits. This tax is known as corporation tax. The shareholders are accountable for tax only on the income they receive by way of any dividends distributed by the company. If the shareholder is an individual, then income tax becomes due on their dividend income received. This is in contrast to the position in a partnership, where each partner is individually liable for the tax on their share of the pre-tax profit that has been allocated. A partner is taxed on the profit and not simply on drawings. Note that this is different from the treatment of an employee who is charged tax on the amount of salary that is paid. In this chapter we consider the different types of company taxation and their accounting treatment. The International Accounting Standard that applies specifically to taxation is IAS 12 Income Taxes. The standard was last revised by the IASB in 2012. Those UK unquoted companies that choose not to follow international standards will follow FRSs 100–102 from 2015 (with earlier adoption allowed). Corporation tax is calculated under rules set by Parliament each year in the Finance Act. The Finance Act may alter the existing rules; it also sets the rate of tax payable. Because of this annual review of the rules, circumstances may change year by year, which makes comparability difficult and