Which of the following statements is correct with respect to IAS 12 Income Taxes when the government increase tax rates?

Question

Quizplus · Accepted Answer

When the government increases tax rates, the entity should recognise a current tax expense in its financial statements. This is because the increase in tax rates leads to an increase in the entity's current tax liability, which is recognised as an expense in the period in which it arises. The entity should also adjust its deferred tax assets and liabilities to reflect the new tax rates. If the entity has deferred tax liabilities, it may need to increase the amount of the liability due to the increase in tax rates, resulting in a higher deferred tax expense. However, if the entity has deferred tax assets, it may need to reduce the amount of the asset due to the increase in tax rates, resulting in a lower deferred tax benefit. Therefore, option B is the correct answer as it states that the entity recognises expense only if it has deferred tax liabilities.

Which of the Following Statements Is Correct with Respect to IAS