14 Unrealised losses resulting from intragroup transactions are eliminated by inclusion in the carrying amount of inventory or property, plant and equipment.
15 Retained earnings of subsidiaries, branches, associates and joint ventures are included in consolidated retained earnings, but income taxes will be payable if the profits are distributed to the reporting parent.
(note: paragraph 39 of the Standard prohibits recognition of the resulting deferred tax liability if the parent, investor or venturer is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future).

Editorial note: Substituted by IFRS 3 with effect for business combinations for which the agreement date is on or after 31 March 2004, subject to further transitional provisions. Previously "The carrying amount of an asset is increased to fair value in a business combination that is an acquisition and no equivalent adjustment is made for tax purposes. (note: on initial recognition, the resulting deferred tax liability increases goodwill or decreases negative goodwill, see paragraph 66 of the Standard)"
13 Reductions in the carrying amount of goodwill are not deductible in determining taxable profit and the cost of the goodwill would not be deductible on disposal of the business. (Note that paragraph 15(a) of the Standard prohibits recognition of the resulting deferred tax liability).

Editorial note: Paragraph 11 substituted by IAS 16 as amended by IASB Corrections List 9, May 2004. Previously "11 An enterprise revalues property, plant and equipment (under the allowed alternative treatment in IAS 16, Property, Plant and Equipment) but no equivalent adjustment is made for tax purposes. (note: paragraph 61 of the Standard requires the related deferred tax to be charged directly to equity)."
Business combinations and consolidation
12 The carrying amount of an asset is increased to fair value in a business combination and no equivalent adjustment is made for tax purposes. ( Note that on initial recognition, the resulting deferred tax liability increases goodwill or decreases the amount of any excess of the acquirer's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities over the cost of the combination. See paragraph 66 of the Standard).

Editorial note: Substituted by improvements project standard IAS 39 with effect for annual periods beginning on or after 1 January 2005. If an entity applies this Standard for an earlier period, these amendments shall be applied for that earlier period. Previously "The liability component of a compound financial instrument (for example a convertible bond) is measured at a discount to the amount repayable on maturity, after assigning a portion of the cash proceeds to the equity component (see IAS 32, Financial Instruments: Disclosure and Presentation). The discount is not deductible in determining taxable profit (tax loss)."
Fair value adjustments and revaluations
10 Financial assets or investement property are carried at fair value which exceeds cost but no equivalent adjustment is made for tax purposes.
11 An entity revalues property, plant and equipment (under the revaluation model in IAS 16 Property, Plant and Equipment) but no equivalent adjustment is made for tax purposes. (note: paragraph 61 of the Standard requires the related deferred tax to be charged directly to equity).

8   A loan payable was measured on initial recognition at the amount of the net proceeds, net of transaction costs. The transaction costs are amortised to accounting profit over the life of the loan. Those transaction costs are not deductible in determining the taxable profit of future, current or prior periods.
(notes: (1) the taxable temporary difference is the amount of unamortised transaction costs; and (2) paragraph 15(b) of the Standard prohibits recognition of the resulting deferred tax liability).
9   The liability component of a compound financial instrument (for example a convertible bond) is measured at a discount to the amount repayable on maturity (see IAS 32 Financial Instruments: Disclosure and Presentation). The discount is not deductible in determining taxable profit (tax loss).
(notes: (1) the taxable temporary difference is the amount of unamortised discount, see example 4 in appendix B; and (2) an enterprise recognises the resulting deferred tax liability and charges the deferred tax directly to the carrying amount of the equity component, see paragraphs 23 and 61 of the Standard. In accordance with paragraph 58, subsequent changes in the deferred tax liability are recognised in the income statement as deferred tax expense (income).

Transactions that affect the balance sheet
6   Depreciation of an asset is not deductible for tax purposes and no deduction will be available for tax purposes when the asset is sold or scrapped.
(note: paragraph 15(b) of the Standard prohibits recognition of the resulting deferred tax liability unless the asset was acquired in a business combination, see also paragraph 22 of the Standard).
7   A borrower records a loan at the proceeds received (which equal the amount due at maturity), less transaction costs. Subsequently, the carrying amount of the loan is increased by amortisation of the transaction costs to accounting profit. The transaction costs were deducted for tax purposes in the period when the loan was first recognised.
(notes: (1) the taxable temporary difference is the amount of transaction costs already deducted in determining the taxable profit of current or prior periods, less the cumulative amount amortised to accounting profit; and (2) as the initial recognition of the loan affects taxable profit, the exception in paragraph 15(b) of the Standard does not apply. Therefore, the borrower recognises the deferred tax liability).

A. Examples of circumstances that give rise to taxable temporary differences
All taxable temporary differences give rise to a deferred tax liability.


Transactions that affect the income statement
1   Interest revenue is received in arrears and is included in accounting profit on a time apportionment basis but is included in taxable profit on a cash basis.
2   Revenue from the sale of goods is included in accounting profit when goods are delivered but is included in taxable profit when cash is collected.
(note: as explained in B3 below, there is also a deductible temporary difference associated with any related inventory).
3   Depreciation of an asset is accelerated for tax purposes.
4   Development costs have been capitalised and will be amortised to the income statement but were deducted in determining taxable profit in the period in which they were incurred.
5   Prepaid expenses have already been deducted on a cash basis in determining the taxable profit of the current or previous periods.

Effective Date
89. This International Accounting Standard becomes operative for financial statements covering periods beginning on or after 1 January, 1998, except as specified in paragraph 91. If an enterprise applies this Standard for financial statements covering periods beginning before 1 January 1998, the enterprise should disclose the fact it has applied this Standard instead of IAS 12, Accounting for Taxes on Income, approved in 1979.
90. This Standard supersedes IAS 12, Accounting for Taxes on Income, approved in 1979.
91. Paragraphs 52A, 52B, 65A, 81(i), 82A, 87A, 87B, 87C and the deletion of paragraphs 3 and 50 become operative for annual financial statements [3] covering periods beginning on orafter 1 January 2001. Earlier adoption is encouraged. If earlier adoption affects the financial statements, an enterprise should disclose that fact.
Appendix A - Examples of Temporary Differences
The appendix is illustrative only and does not form part of the Standard. The purpose of the appendix is to illustrate the application of the Standard to assist in clarifying its meaning.

Example Illustrating Paragraph 85
In 19X2, an enterprise has accounting profit in its ownjurisdiction (country A) of 1,500 (19X1: 2,000) and in country B of 1,500(19X1: 500). The tax rate is 30% in country A and 20% in country B. In countryA, expenses of 100 (19X1: 200) are not deductible for tax purposes.
The following is an example of a reconciliation to thedomestic tax rate.

	19X1	19X2
Accounting profit	2,500	3,000
Tax at the domestic rate of 30%	750	900
Tax effect of expenses that are notdeductible for tax purposes	60	30
Effect of lower tax rates in country B	(50)	(150)
Tax expense	760	780

The following is an example of a reconciliation preparedby aggregating separate reconciliations for each national jurisdiction. Underthis method, the effect of differences between the reporting enterprise's owndomestic tax rate and the domestic tax rate in other jurisdictions does notappear as a separate item in the reconciliation. An enterprise may need todiscuss the effect of significant changes in either tax rates, or the mix ofprofits earned in different jurisdictions, in order to explain changes in theapplicable tax rate(s), as required by paragraph 81(d).

Accounting profit	2,500	3,000
Tax at the domestic rates applicableto profits in the country concerned	700	750
Tax effect of expenses that are notdeductible for tax purposes	60	30
Tax expense	760	780

87C. An enterprise required to provide the disclosures in paragraph 82A may also be required to provide disclosures related to temporary differences associated with investments in subsidiaries, branches and associates or interests in joint ventures. In such cases, an enterprise considers this in determining the information to be disclosed under paragraph 82A. For example, an enterprise may be required to disclose the aggregate amount of temporary differences associated with investments in subsidiaries for which no deferred tax liabilities have been recognised (see paragraph 81(f)). If it is impracticable to compute the amounts of unrecognised deferred tax liabilities (see paragraph 87) there may be amounts of potential income tax consequences of dividends not practicably determinable related to these subsidiaries.
88. An enterprise discloses any tax-related contingent liabilities and contingent assets in accordance with IAS 37, Provisions, Contingent Liabilities and Contingent Assets. Contingent liabilities and contingent assets may arise, for example, from unresolved disputes with the taxation authorities. Similarly, where changes in tax rates or tax laws are enacted or announced after the balance sheet date, an enterprise discloses any significant effect of those changes on its current and deferred tax assets and liabilities (see IAS 10, Events After the Balance Sheet Date).