Financial Reporting · Taxation

IAS 12 Presentation and Disclosure of Tax for ACCA FR

Updated 11 October 2026 · Fact-checked

Under IAS 12, the tax expense in profit or loss is current tax plus the deferred tax movement, adjusted for any prior-year under or over provision. Tax on items in OCI or equity goes there too. Show tax liabilities and deferred tax separately in the statement of financial position, and offset only when the IAS 12 conditions are met.

Understand Presentation and Disclosure of Tax

Tax appears in the financial statements in three places: the statement of profit or loss, other comprehensive income (OCI) and the statement of financial position. Your job in FR is to put each amount in the right place.

The tax expense in profit or loss has three parts: current tax for the year, the movement on deferred tax, and any under or over provision from the previous year. The rule is simple: tax follows the item that caused it. If a gain or loss is recognised in profit or loss, its tax goes in profit or loss. If it is recognised in OCI, its tax goes in OCI. If it is recognised directly in equity, its tax goes in equity.

The classic exam case is a revaluation surplus. The surplus goes to OCI, so the deferred tax on that surplus is debited to OCI (shown as tax relating to the item) and credited to the deferred tax liability. It does not touch profit or loss. Only the extra deferred tax caused by items in profit or loss is charged to profit or loss.

In the statement of financial position, current tax payable is a current liability (or a current asset if refundable). IAS 1 requires deferred tax assets and liabilities not to be classified as current, so they are shown as non-current. IAS 1 also requires current tax and deferred tax to be shown as separate line items on the face of the statement of financial position.

Whether balances can be offset is a separate question, and IAS 12 governs it. Current tax assets and liabilities are offset only if the entity has a legally enforceable right to set off and intends to settle net or at the same time. For deferred tax, IAS 12 (para 74) allows offset only if the entity has a legally enforceable right to set off current tax assets against current tax liabilities, and the balances relate to income taxes levied by the same authority on the same taxable entity (or on different entities that intend to settle net or at the same time).

The notes must give the major components of tax expense, the tax relating to each component of OCI, and an explanation of the relationship between tax expense and accounting profit. This is done either as a reconciliation of amounts or as a reconciliation of rates. Also disclose unused tax losses and deductible temporary differences for which no deferred tax asset is recognised.

Key rules to remember

Tax expense in profit or loss: Tax expense = Current tax for the year + Deferred tax charge (or − credit) in P/L ± Under/over provision for prior year; An under provision increases the charge. An over provision reduces it.
Deferred tax movement: Movement = Closing deferred tax liability − Opening deferred tax liability; Split it between P/L and OCI. Only the part linked to OCI items goes to OCI.
Deferred tax on revaluation: Deferred tax in OCI = Revaluation surplus × tax rate; Use the rate expected to apply when the temporary difference reverses, as enacted or substantively enacted.
Offset of current tax: Offset only if: legally enforceable right to set off AND intent to settle net or simultaneously; Both conditions are needed.
Offset of deferred tax: Offset only if: legal right to set off current tax assets against current tax liabilities AND the balances relate to income taxes levied by the same authority on the same taxable entity (or on different entities intending net or simultaneous settlement); Both conditions are needed. For different entities, the intention to settle net or simultaneously must also be present.
Average effective tax rate: Average effective rate = Tax expense ÷ Accounting profit before tax × 100%; Used in the rate reconciliation, which explains the gap from the applicable rate.

How to solve Presentation and Disclosure of Tax questions

Use this method for any question asking you to show tax in the financial statements.

1Find the current tax estimate for the year and the opening balance of current tax payable.
2Calculate any under or over provision: amount actually paid in settlement less opening liability. A positive result is an under provision. A negative result is an over provision.
3Work out the closing deferred tax balance (temporary difference × tax rate) and compare it with the opening balance.
4Split the deferred tax movement. Tax on revaluation surplus goes to OCI. The rest goes to profit or loss.
5Add up the profit or loss tax expense: current tax + under/over provision + deferred tax movement in P/L.
6Prepare the journals and the closing balances: current tax payable, and deferred tax liability or asset.
7Check offset conditions before combining any balances in the statement of financial position.
8Write any note required, such as the components of tax expense or the rate reconciliation.

Quickest way: Three-line tax check

When to use it: Use it in Section A and B objective questions, or to check a Section C answer.

Line 1: current tax charge in P/L = this year's estimate + under provision (or − over provision).
Line 2: deferred tax movement = closing − opening, then take off the part going to OCI.
Line 3: P/L tax expense = line 1 + the P/L part of line 2. OCI gets the rest.
Check the answer: the under or over provision is the final settlement of last year's tax less the opening liability, and it goes through P/L. Closing current tax payable = this year's estimate + any part of last year's liability still unpaid at the year end.

Common mistakes in Presentation and Disclosure of Tax

Charging all the deferred tax movement to profit or loss.
Students see one closing balance and treat the whole change as one expense.
Fix: Ask what caused each part. Tax on a revaluation surplus goes to OCI. Only the remainder goes to profit or loss.
Ignoring the under or over provision from last year.
The prior-year figure is hidden in the opening balance and the cash paid.
Fix: Compare the opening liability with the amount paid. The difference is the adjustment to this year's charge.
Treating an over provision as an increase in the charge.
Confusion about the direction of the adjustment.
Fix: An over provision means you charged too much last year. Deduct it this year. An under provision is added.
Showing deferred tax as a current liability.
Students link it to the tax payable line.
Fix: IAS 1 does not allow deferred tax assets and liabilities to be classified as current, so show them as non-current. IAS 1 also requires current tax and deferred tax to be shown as separate line items on the face of the statement of financial position.
Offsetting deferred tax assets and liabilities automatically.
Students think offsetting is always allowed when both exist.
Fix: Apply the IAS 12 (para 74) test. Check the legal right to set off current tax assets against current tax liabilities. Also check that the balances relate to income taxes levied by the same authority on the same taxable entity (or on different entities intending net or simultaneous settlement). Otherwise show them gross.
Recording deferred tax on a revaluation surplus in profit or loss.
Students remember the credit to the deferred tax liability and forget the debit.
Fix: Recognise the debit in OCI as tax relating to the revaluation, which reduces the revaluation surplus held in equity, and credit the deferred tax liability.

Worked examples

Example 1

At 1 January the opening current tax payable is ₹4,00,000 and the opening deferred tax liability is ₹6,00,000. During the year the entity paid ₹4,50,000 in settlement of last year's tax. The current tax estimate for this year is ₹9,00,000. The closing deferred tax liability is ₹7,50,000, with no revaluations in the year. Calculate the tax expense in profit or loss and the closing tax balances.

Show the solution

Under provision = amount paid ₹4,50,000 − opening liability ₹4,00,000 = ₹50,000.
Deferred tax movement = ₹7,50,000 − ₹6,00,000 = ₹1,50,000 charge. All of it goes to profit or loss because there is no OCI item.
Tax expense = ₹9,00,000 + ₹50,000 + ₹1,50,000 = ₹11,00,000.
Closing current tax payable = this year's estimate = ₹9,00,000, since last year's liability was settled by payment.
Closing deferred tax liability = ₹7,50,000 (non-current).

Answer: Tax expense in profit or loss is ₹11,00,000. Current tax payable is ₹9,00,000 and the deferred tax liability is ₹7,50,000.

Example 2

An entity revalues a property during the year, creating a revaluation surplus of ₹20,00,000. The tax rate is 25%. The opening deferred tax liability is ₹5,00,000. The closing deferred tax liability, including the effect of the revaluation and other timing differences, is ₹11,00,000. Current tax for the year is ₹8,00,000 and there is no under or over provision. Calculate the tax expense in profit or loss and the tax in OCI.

Show the solution

Deferred tax on the revaluation = ₹20,00,000 × 25% = ₹5,00,000. This goes to OCI.
Total deferred tax movement = ₹11,00,000 − ₹5,00,000 = ₹6,00,000.
Deferred tax movement in profit or loss = ₹6,00,000 − ₹5,00,000 = ₹1,00,000.
Tax expense in profit or loss = current tax ₹8,00,000 + deferred ₹1,00,000 = ₹9,00,000.
Journal for the revaluation tax: Dr OCI (revaluation surplus) ₹5,00,000, Cr Deferred tax liability ₹5,00,000.
Net revaluation surplus in OCI = ₹20,00,000 − ₹5,00,000 = ₹15,00,000.

Answer: Profit or loss tax expense is ₹9,00,000. Tax relating to OCI is ₹5,00,000, so OCI shows a revaluation gain of ₹20,00,000 less tax of ₹5,00,000, giving ₹15,00,000.

Exam tips

In Section C, set out the tax expense as a short working: current, under/over provision, deferred. Marks go for each component.
If a revaluation appears in the question, look for the deferred tax on it at once. The examiner is testing whether you send it to OCI.
For objective questions on offsetting, test both conditions. Missing one makes the offset wrong.
In rate reconciliation questions, start with accounting profit × applicable rate, then add the tax effect of non-deductible items to reach the actual tax expense.
Show the journal lines for deferred tax. They help earn method marks even if a figure is wrong.

Practice questions from Taxation

Presentation and Disclosure of Tax in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Presentation and Disclosure of Tax: frequently asked questions

Where does deferred tax on a revaluation go?

It is recognised in OCI, not profit or loss, because the revaluation surplus itself is in OCI. The debit is recognised in OCI as tax relating to the revaluation, which reduces the revaluation surplus held in equity. Credit the deferred tax liability. It appears as tax relating to items that will not be reclassified.

When can deferred tax assets and liabilities be offset?

Only when the entity has a legally enforceable right to set off current tax assets against current tax liabilities. The balances must also relate to income taxes levied by the same authority on the same taxable entity, or on different entities that intend to settle net or simultaneously. If either condition fails, show them separately.

What is an under provision of tax?

It arises when the tax finally paid for last year is more than the liability estimated in last year's accounts. The difference is added to this year's tax expense. An over provision is the reverse and reduces this year's charge.

What is the tax rate reconciliation?

It is a note explaining why the tax expense differs from accounting profit multiplied by the applicable tax rate. It can be shown in amounts or in percentage rates. Typical reconciling items are non-deductible expenses and differences in rates.