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Strategic Business Reporting (International) · Income taxes

Current Tax under IAS 12: Measurement and Recognition

Updated 11 October 2026 · Fact-checked

Current tax is the income tax payable or recoverable on the taxable profit or loss of the period. Measure it using tax rates enacted or substantively enacted by the reporting date. Adjust for prior-year under or over provisions in the current year, and recognise tax where the underlying item is recognised: profit or loss, OCI or equity.

Understand Current Tax under IAS 12

Current tax is the amount of income tax payable (or recoverable) for a period. It is worked out from taxable profit, not accounting profit. Taxable profit follows tax law. Accounting profit follows IFRS. The two differ because some income and expenses are taxed in a different period, or never taxed at all. Those differences feed deferred tax, which is a separate topic.

If tax already paid for the current and earlier periods is more than the amount due, the excess is a current tax asset (a receivable). If less has been paid than is due, the unpaid amount is a current tax liability. You measure either one at the amount expected to be paid to, or recovered from, the tax authority. Use the tax rates and laws that are enacted or substantively enacted by the end of the reporting period.

The year-end estimate is rarely exactly right. When the tax authority later agrees the final figure, the difference is an under provision (final bill higher than estimated) or an over provision (final bill lower). IAS 12 treats this as a change in estimate. You do not restate the prior year. You include the difference in the current year's tax expense. An under provision adds to the current charge. An over provision reduces it. A material error is different and falls under IAS 8.

The tax follows the item that caused it. Tax on items in profit or loss goes to profit or loss. Tax on items in other comprehensive income, such as a revaluation gain, goes to OCI. Tax on items taken directly to equity, such as a retrospective adjustment under IAS 8, goes directly to equity. This is called intraperiod allocation. The exam often tests it with a scenario and a short explanation requirement.

Current tax assets and liabilities are offset only if the entity has a legally enforceable right to set off the amounts and intends to settle net or settle at the same time.

Key rules to remember

Current tax for the year
Taxable profit × enacted or substantively enacted tax rate
Start from accounting profit and adjust for permanent and temporary differences to reach taxable profit.
Total tax expense in profit or loss
Current tax for the year + under provision (or − over provision) from prior year + deferred tax movement
Deferred tax is covered separately. Only the current tax part is shown here.
Under or over provision
Final tax agreed − provision made in prior year
A positive result is an under provision and an expense. A negative result is an over provision and reduces the expense.
Current tax liability at year end
Current year tax charge − tax already paid for the year (+ any unpaid prior-year balance)
If payments exceed the charge, show a current tax asset.
Where the tax goes
Tax follows the underlying item: profit or loss, OCI or equity
Applies to current and deferred tax alike.
Tax rate to use
Rate enacted or substantively enacted at the reporting date
Do not use proposed rates that are not yet substantively enacted.

How to solve Current Tax under IAS 12 questions

Use this order for any current tax question. It keeps the numbers and the explanation tidy.

  1. 1Identify the tax rate. Use the rate enacted or substantively enacted at the reporting date, and check whether the scenario mentions a future rate change.
  2. 2Compute the current year tax charge on taxable profit. If you are given the charge, use it directly.
  3. 3Deal with the prior year. Compare the final agreed amount with the opening provision. The difference is an under or over provision, taken to the current year's charge.
  4. 4Work out the closing balance. Take the opening liability, add the total charge, then deduct cash paid. A negative result is a current tax asset.
  5. 5Decide where each tax amount is recognised. Tax on OCI items goes to OCI. Tax on items taken to equity goes to equity. All other tax goes to profit or loss.
  6. 6Write the journal entries. Debit tax expense, debit OCI or equity where relevant, and credit the current tax liability.
  7. 7Present the result. Show the tax expense in profit or loss and the liability or asset in the statement of financial position, and say whether any offset applies.
  8. 8Add a short sentence of explanation tied to the scenario. This earns professional skills marks.

Quickest way: Tax liability ledger account

When to use it: Use this when the question gives an opening balance, a payment, a final settlement and an estimate for the year, and asks for the charge and closing balance.

  1. Draw a T account for current tax payable.
  2. Put the opening balance on the credit side and the cash paid on the debit side.
  3. Post the prior-year difference. If it is an under provision, credit the account and debit the expense. If it is an over provision, debit the account and credit the expense.
  4. Post the current year estimate as a credit, with the debit going to expense (or to OCI or equity as relevant).
  5. Balance the account. The closing figure is the liability, or an asset if it is a debit balance.
  6. Total the expense amounts for the income statement figure.

Common mistakes in Current Tax under IAS 12

  • Restating the prior-year financial statements for an under or over provision.

    Students treat it like an error correction.

    Fix: Treat it as a change in estimate. Put the difference in the current year's tax expense. Use IAS 8 restatement only for a material error.

  • Using accounting profit instead of taxable profit to calculate current tax.

    The question gives one profit figure and students apply the rate without adjusting.

    Fix: Check for non-taxable income and disallowable expenses. Apply the rate to taxable profit.

  • Putting all tax in profit or loss.

    Students forget that tax follows the underlying item.

    Fix: Whenever a gain or loss is in OCI or equity, ask where its tax goes. Put it in the same place.

  • Using a proposed future tax rate.

    The scenario mentions a government announcement.

    Fix: Use a new rate only if it is enacted or substantively enacted by the reporting date. Otherwise use the current rate.

  • Getting the sign wrong on an over provision.

    Students add the difference rather than think about direction.

    Fix: Over provision means you paid less than you estimated, so the expense falls. Under provision means the expense rises.

  • Netting current tax assets and liabilities automatically.

    Students assume tax balances always offset.

    Fix: Offset only with a legally enforceable right and an intention to settle net or simultaneously. Say so in your answer.

Worked examples

Example 1

Alpha's year-end is 31 December 20X1. At 31 December 20X0 it provided ₹8,00,000 for income tax. In 20X1 the tax authority agreed the final bill at ₹8,50,000, and Alpha paid this amount in 20X1. Taxable profit for 20X1 is ₹40,00,000 and the tax rate is 25%. Alpha paid ₹6,00,000 on account for 20X1 tax during the year. Compute the tax expense for current tax in profit or loss and the closing current tax liability.

Show the solution
  1. Prior-year under provision: final ₹8,50,000 less provision ₹8,00,000 = ₹50,000 under provided. This is an additional expense in 20X1.
  2. Current year charge: ₹40,00,000 × 25% = ₹10,00,000.
  3. Total current tax expense in profit or loss: ₹10,00,000 + ₹50,000 = ₹10,50,000.
  4. Liability ledger: opening credit ₹8,00,000. Add under provision ₹50,000 = ₹8,50,000. Payment of the final bill ₹8,50,000 clears it, leaving nil.
  5. Add the current year charge ₹10,00,000 as a credit. Deduct the on-account payment ₹6,00,000. Closing liability = ₹4,00,000.
  6. Journal for the current year: Dr Tax expense ₹10,00,000, Cr Current tax liability ₹10,00,000. Journal for the under provision: Dr Tax expense ₹50,000, Cr Current tax liability ₹50,000.

Answer: Current tax expense in profit or loss is ₹10,50,000. The closing current tax liability is ₹4,00,000.

Example 2

Beta holds land measured under the revaluation model. In the year to 31 March 20X2 it recognised a revaluation gain of ₹20,00,000 in OCI. Assume the gain would be taxed at 20% and the tax is treated as current for this example. Separately, Beta's profit before tax is ₹60,00,000 with no adjustments for tax purposes, and the rate on all other profit is 20%. An over provision of ₹1,50,000 on the prior-year tax was found when the final figure was agreed. Show the tax in profit or loss and in OCI, and explain the treatment.

Show the solution
  1. Tax on ordinary profit: ₹60,00,000 × 20% = ₹12,00,000. This goes to profit or loss.
  2. Over provision: the prior-year estimate exceeded the final bill by ₹1,50,000. This reduces the current year expense.
  3. Total tax expense in profit or loss: ₹12,00,000 − ₹1,50,000 = ₹10,50,000.
  4. Tax on the revaluation gain: ₹20,00,000 × 20% = ₹4,00,000. The gain is in OCI, so its tax is also recognised in OCI.
  5. Journal for the revaluation tax: Dr Tax recognised in OCI ₹4,00,000, Cr Current tax liability ₹4,00,000. The net OCI gain is ₹16,00,000.
  6. Explanation: IAS 12 requires tax to follow the item it relates to. The over provision is a change in estimate, so it goes through the current year profit or loss and prior-year figures are not restated.

Answer: Tax expense in profit or loss is ₹10,50,000. Tax of ₹4,00,000 is shown in OCI, giving a net revaluation gain in OCI of ₹16,00,000.

Exam tips

  • Show a short ledger or journal for the tax liability. Markers give credit for clear workings even if one number is wrong.
  • When the scenario mentions OCI or equity items, ask where the tax goes. This is a regular trap in written questions.
  • Write one sentence naming the rule, such as change in estimate or enacted rate. This supports technical marks and professional skills marks.
  • Always check the date of any tax rate change against the reporting date before choosing the rate.
  • If the question asks you to advise a director, explain the effect on profit and on the statement of financial position in plain business terms.

Practice questions from Income taxes

Current Tax under IAS 12 in other exams

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

Current Tax under IAS 12: frequently asked questions

How do I account for an under provision of tax from the prior year under IAS 12?

Include the extra amount in the current year's tax expense. Debit tax expense and credit the current tax liability. Do not restate the prior year, because it is a change in estimate and not an error.

When is current tax recognised in OCI or equity?

When the transaction it relates to is recognised in OCI or equity. A revaluation gain in OCI carries its tax in OCI. An adjustment taken directly to equity carries its tax in equity.

What tax rate should I use for current tax?

Use the rate enacted or substantively enacted by the end of the reporting period. Do not use a rate that has only been proposed. A later change is reflected in the period it is enacted.

When do I show a current tax asset instead of a liability?

When the tax paid for the current and earlier periods exceeds the amount due. The excess is recoverable, so it is an asset. It is also an asset where a tax loss can be carried back to recover tax paid earlier.