Employee Knowledge Guide

Principles  Worked Examples  Bangladesh Practice Notes

Publication details
Prepared for	Employees of G. Kibria & Co., Chartered Accountants
Edition	First edition
Publication date	22 September 2026
Status	Internal technical knowledge resource

This guide explains the mechanics of deferred tax under IAS 12 and provides reusable worked examples. The numerical tax rates are illustrative unless expressly identified otherwise. Bangladesh tax rates, tax bases, loss rules and recovery consequences must be verified for the relevant entity, income year and assessment year before client use.

Purpose and use of this guide

IAS 12 converts future tax consequences into present financial statement balances. The standard is straightforward once staff consistently separate accounting carrying amounts from tax bases, identify whether each difference will increase or reduce future taxable profit, and apply the correct enacted or substantively enacted tax rate.

This publication is designed as a desk reference for audit, accounting and advisory teams. It explains the core model, shows the calculations and journal entries, and sets out the evidence expected in a year-end deferred tax working paper. The Bangladesh-specific section is intentionally separate because IAS 12 supplies the accounting model while Bangladesh law supplies many of the inputs.

How to use the examples

• Use each numerical example to understand the method, not as a source of a current Bangladesh tax rate.
• Replace the illustrative rate with the enacted or substantively enacted rate expected when the balance reverses.
• Reconcile every tax base to the tax return, tax fixed-asset schedule, loss schedule or other supporting computation.
• Escalate uncertain recovery assumptions, loss recognition and offsetting conclusions for technical review.

Contents

Section	Subject
1	The IAS 12 model
2	Deferred tax liabilities and assets
3	Worked example for depreciation
4	Worked example for revaluation
5	Worked example for tax losses
6	Presentation and offsetting
7	Recognition exceptions
8	Bangladesh specific practice notes
9	Year end working paper
10	Reference material and glossary

 

1. The IAS 12 model

IAS 12 prescribes accounting for current and deferred income taxes. Current tax measures the amount payable or recoverable for the current and prior periods. Deferred tax measures the future tax consequences of recovering assets and settling liabilities already recognized in the statement of financial position.

The temporary difference approach

A temporary difference is the difference between the carrying amount of an asset or liability in the statement of financial position and its tax base.

Temporary difference = Carrying amount - Tax base

Deferred tax = Temporary difference × Applicable tax rate

The tax base is the amount attributed to the asset or liability for tax purposes. It is therefore a tax-law conclusion, not simply another accounting balance.

Decision sequence

1. Identify every recognized asset and liability that may have a different tax base.
2. Determine how the asset will be recovered or the liability settled.
3. Calculate the tax base under the applicable tax legislation.
4. Calculate the temporary difference.
5. Classify the difference as taxable or deductible.
6. Apply the enacted or substantively enacted rate expected at reversal.
7. Apply recognition exceptions and the probability test for deferred tax assets.
8. Recognize the tax effect in profit or loss, OCI or equity consistently with the underlying item.

Current tax and deferred tax

Balance	What it represents	Typical presentation
Current tax payable	Tax expected to be paid for current or prior taxable profit	Current liability
Current tax receivable	Tax overpaid or recoverable for current or prior periods	Current asset
Deferred tax liability	Future tax expected from taxable temporary differences	Non-current liability
Deferred tax asset	Future tax benefit from deductible differences, losses or credits	Non-current asset

 

2. Deferred tax liabilities and assets

For an asset, a carrying amount above its tax base normally creates a taxable temporary difference and a deferred tax liability. A carrying amount below its tax base normally creates a deductible temporary difference and a deferred tax asset. The logic reverses for liabilities.

Comparison	Asset	Liability
Carrying amount greater than tax base	Usually DTL	Usually DTA
Carrying amount less than tax base	Usually DTA	Usually DTL

 The shortcut must not replace analysis. Staff should ask whether recovery of the asset or settlement of the liability will cause the entity to pay more or less tax in the future.

Recognition of deferred tax assets

A deferred tax asset is recognized only to the extent that it is probable that taxable profit will be available against which the deductible temporary difference, unused tax loss or unused tax credit can be utilized. The assessment must consider the character, timing and expiry of the tax benefit, not merely total forecast accounting profit.

Evidence may include:

• Taxable temporary differences expected to reverse in the relevant period and tax category.
• Approved forecasts supported by contracts, order books and past forecast accuracy.
• Evidence that recent losses resulted from identifiable non-recurring causes.
• Feasible tax-planning opportunities available under the applicable law.

Where the entity has a recent history of tax losses, recognition requires convincing evidence. An unsupported management forecast is not sufficient.

Where the tax effect is recognized

Underlying item recognized in	Related tax effect recognized in
Profit or loss	Profit or loss
Other comprehensive income	Other comprehensive income
Equity	Equity
Business combination	Goodwill or bargain purchase accounting, as applicable

 

 

3. Worked example for depreciation

A company purchases machinery for BDT 1,200,000 on 1 January. Accounting depreciation is straight-line over three years. Tax depreciation is 50 percent in Year 1, 30 percent in Year 2 and 20 percent in Year 3. Profit before depreciation and tax is BDT 1,000,000 each year. The illustrative tax rate is 30 percent.

Year	Accounting depreciation	Tax depreciation
Year 1	400,000	600,000
Year 2	400,000	360,000
Year 3	400,000	240,000
Total	1,200,000	1,200,000

 

Year 1 calculation

Item	BDT
Carrying amount: 1,200,000 - 400,000	800,000
Tax base: 1,200,000 - 600,000	600,000
Taxable temporary difference	200,000
Closing DTL at 30 percent	60,000

Taxable profit is BDT 400,000 and current tax is BDT 120,000. Deferred tax expense is BDT 60,000, producing total tax expense of BDT 180,000, which equals 30 percent of accounting profit before tax of BDT 600,000.

Year 1 entries

Debit	Credit	BDT
Current tax expense	Current tax payable	120,000
Deferred tax expense	Deferred tax liability	60,000

 

Reversal across the asset life

Year	Current tax	Deferred tax expense or income	Total tax expense	Closing DTL
1	120,000	60,000 expense	180,000	60,000
2	192,000	12,000 income	180,000	48,000
3	228,000	48,000 income	180,000	Nil
Total	540,000	Nil	540,000	Nil

The accelerated tax deduction reduces current tax in Year 1 but does not permanently eliminate tax. The deferred tax liability records the future tax consequence and reverses as accounting depreciation exceeds tax depreciation in Years 2 and 3.

4. Worked example for revaluation

A building has an original cost of BDT 10,000,000 and accumulated depreciation of BDT 2,000,000. It is revalued from a carrying amount of BDT 8,000,000 to BDT 12,000,000. The accounting revaluation does not change its tax base of BDT 8,000,000. The illustrative tax rate is 30 percent and the remaining useful life is 20 years.

Initial revaluation

Calculation	BDT
Revaluation increase: 12,000,000 - 8,000,000	4,000,000
Taxable temporary difference: 12,000,000 - 8,000,000	4,000,000
Deferred tax liability at 30 percent	1,200,000
Net revaluation surplus	2,800,000

 

Journal entries

Debit	Credit	BDT
Property plant and equipment	Revaluation surplus in OCI	4,000,000
Revaluation surplus in OCI	Deferred tax liability	1,200,000

The tax follows the underlying item. Because the revaluation gain is recognized in OCI, the related initial deferred tax is also recognized in OCI.

First year after revaluation

Item	Accounting	Tax
Opening amount	12,000,000	8,000,000
Annual depreciation	600,000	400,000
Closing amount	11,400,000	7,600,000

The closing temporary difference is BDT 3,800,000 and the closing DTL is BDT 1,140,000. The DTL therefore reverses by BDT 60,000 during the year.

Recovery assumption

Measurement must reflect the tax consequences of the expected manner of recovery. A building recovered through use may have different consequences from land or property expected to be sold. Staff must document the recovery assumption and the rate applicable to that mode of recovery.

5. Worked example for tax losses

A company incurs a tax loss of BDT 5,000,000 in Year 1. The loss can be carried forward and management has convincing evidence that it will be utilized against taxable profit of BDT 2,000,000 in Year 2 and BDT 3,000,000 in Year 3. The illustrative tax rate is 30 percent.

Year 1 recognition

Deferred tax asset = BDT 5,000,000 × 30 percent = BDT 1,500,000

Debit	Credit	BDT
Deferred tax asset	Deferred tax income	1,500,000

 

Years 2 and 3 utilization

Year	Loss generated or used	Current tax	Deferred tax income or expense	Closing DTA
1	5,000,000 generated	Nil	1,500,000 income	1,500,000
2	2,000,000 used	Nil	600,000 expense	900,000
3	3,000,000 used	Nil	900,000 expense	Nil

 Although no current tax is payable in Years 2 and 3, deferred tax expense is recognized because the previously recorded benefit is being consumed.

Partial recognition

If reliable forecasts support utilization of only BDT 3,000,000 of the loss, the entity recognizes a DTA of BDT 900,000. The potential benefit of BDT 600,000 on the remaining BDT 2,000,000 loss is not recognized. The unrecognized amount is reassessed at every reporting date and disclosed as required.

Evidence file

1. Reconcile the loss to the filed or draft tax computation.
2. Record the legal carry-forward period and expiry by year and loss category.
3. Match forecast taxable income to the category against which the loss may be used.
4. Compare prior forecasts with actual results and explain significant variances.
5. Document the evidence that makes utilization probable, particularly after recent losses.

6. Presentation and offsetting

Deferred tax assets and deferred tax liabilities are presented as non-current. Current income tax receivables and payables remain current balances.

Tax balance	Classification
Current income tax receivable	Current asset
Current income tax payable	Current liability
Deferred tax asset	Non-current asset
Deferred tax liability	Non-current liability

 

Offset conditions

A deferred tax asset may be offset against a deferred tax liability only when both conditions below are satisfied:

9. The entity has a legally enforceable right to offset current tax assets against current tax liabilities.

10. The deferred tax balances relate to income taxes imposed by the same taxation authority on the same taxable entity, or on different taxable entities that intend to settle current tax balances net or realize assets and settle liabilities simultaneously in every relevant future period.

Example where offset may be permitted

A single company has a DTA of BDT 1,500,000 and a DTL of BDT 1,200,000 relating to the same income tax and taxation authority. If the legal offset condition is met, it may present a net non-current DTA of BDT 300,000.

Example where offset is normally not permitted

A group has a DTA in Subsidiary A and a DTL in Subsidiary B. Common ownership and the same national tax authority do not by themselves permit offsetting. Where the entities file and settle tax separately without the required net or simultaneous settlement arrangement, the balances remain separate in the consolidated financial statements.

Disclosure focus

• Major components of tax expense and deferred tax movements.
• Tax effects recognized outside profit or loss.
• Reconciliation between tax expense and accounting profit multiplied by the applicable rate.
• Unrecognized deductible differences, losses and credits, including expiry information when relevant.
• Evidence supporting a material DTA where the entity has recent losses.

7. Recognition exceptions

IAS 12 requires deferred tax for temporary differences subject to specified exceptions and recognition conditions. These provisions should be applied narrowly and documented.

Initial recognition of goodwill

A deferred tax liability is not recognized for a taxable temporary difference arising from the initial recognition of goodwill. This exception applies to the initial goodwill difference and prevents the tax entry from immediately increasing goodwill further.

Initial recognition exception

Deferred tax is not recognized on initial recognition when the transaction is not a business combination, affects neither accounting profit nor taxable profit at the transaction date, and does not give rise to equal taxable and deductible temporary differences. All conditions must be met.

Single transactions

The initial recognition exception does not apply when one transaction creates equal taxable and deductible temporary differences. This is relevant to many leases and decommissioning obligations. Subject to the DTA recognition test, the entity recognizes the related DTA and DTL.

Investments in subsidiaries associates and joint arrangements

A DTL is not recognized for a taxable temporary difference relating to such an investment when the investor controls the timing of reversal and it is probable that the difference will not reverse in the foreseeable future. A DTA requires probable reversal in the foreseeable future and probable taxable profit against which the deduction can be used.

Tax losses and credits

The probability threshold is a recognition condition rather than a blanket exception. An entity recognizes only the portion supported by probable future taxable profit and reassesses both recognized and unrecognized benefits at each reporting date.

Pillar Two income taxes

IAS 12 contains a mandatory temporary exception from recognizing and disclosing deferred tax assets and liabilities related to Pillar Two income taxes, together with targeted disclosure requirements for affected entities.

Area	Core conclusion
Initial goodwill	Do not recognize the initial DTL
Qualifying initial recognition	Do not recognize DTA or DTL
Equal taxable and deductible differences	Initial recognition exception unavailable
Investment with controlled non-foreseeable reversal	DTL may be excepted
Losses without probable taxable profit	Do not recognize unsupported DTA
Pillar Two deferred tax	Apply mandatory temporary exception

 

 

8. Bangladesh specific practice notes

This section is deliberately separate from the IAS 12 principles. IAS 12 determines the accounting method. Bangladesh tax legislation and regulatory requirements determine many of the inputs, including the tax base, available deductions, loss utilization, recovery consequences and applicable rate.

Current-law verification

For each engagement, use the Income Tax Act 2023 as amended, the relevant annual Finance Act or Ordinance, applicable rules, statutory regulatory orders and NBR guidance. Do not copy a rate or loss period from an earlier file without checking the entity category and reporting date.

Bangladesh application matrix

Topic	Bangladesh practice requirement
Tax depreciation	Reconcile carrying amounts to the tax written-down values in the tax fixed-asset schedule. Accounting depreciation does not establish the tax base.
Revaluation	An accounting revaluation does not automatically change the tax base. Determine the tax consequences of recovery through use or sale.
Tax losses	Confirm the loss category, permitted set-off, carry-forward period, expiry and continuity conditions before recognizing a DTA.
Tax rate	Select the enacted or substantively enacted rate applicable to the taxpayer, income category and expected manner of reversal.
Minimum tax	Do not assume that an accounting or tax loss means no current tax. Assess minimum-tax and other statutory provisions separately.
Advance tax and withholding	Treat creditable advance and withholding tax within current tax unless a separate analysis demonstrates another treatment.
Group balances	Assess each legal taxpayer separately. Common ownership does not create an automatic right to offset.
Permanent differences	Exclude amounts that will never be deductible or taxable from the deferred tax calculation; reflect them in the effective tax rate reconciliation.

 

Accounting loss and tax loss

A Bangladesh accounting loss is not automatically a tax loss. The tax computation may contain disallowed expenditure, tax depreciation, exempt or separately taxed income, withholding consequences and minimum-tax adjustments. Recognize a loss-related DTA only from the legally available tax loss after those adjustments.

Illustration

If the income statement reports a loss of BDT 5,000,000 but the tax computation shows an eligible carried-forward loss of BDT 3,000,000, the DTA calculation begins with BDT 3,000,000. At an illustrative 30 percent rate, the maximum potential DTA is BDT 900,000, subject to probability and legal utilization tests.

Bangladesh specific practice notes continued

Minimum tax and current tax

An entity may report an accounting loss and still owe current tax under applicable minimum-tax or source-tax provisions. Minimum tax paid is not automatically a deferred tax asset. Staff must determine whether the amount is current tax, whether it is legally creditable or recoverable, and whether recognition criteria are satisfied.

Permanent and temporary differences

Item	Likely analysis	Deferred tax consequence
Different accounting and tax depreciation	Temporary difference	DTA or DTL depending on the direction
Provision deductible only when paid	Temporary difference	Potential DTA subject to recognition
Property revaluation without tax-base uplift	Temporary difference	Usually DTL
Unused eligible tax loss	Potential future deduction	DTA only to extent utilization is probable
Fine or penalty permanently disallowed	Permanent difference	No deferred tax
Expense above a permanent statutory limit	Permanent difference	No deferred tax
Exempt income	Permanent difference	No deferred tax for the exclusion itself

 

Bangladesh file documentation

• Identify the legal taxpayer, business category and reporting date.
• Record the relevant income year and assessment year.
• Cite the enacted or substantively enacted provision supporting the rate.
•  Reconcile tax bases to the latest tax computation and supporting schedules.
• Maintain a loss register by source, category, origination year, utilization and expiry.
• Document minimum-tax, source-tax and advance-tax treatment separately from deferred tax.
• For revalued property, document the expected manner of recovery and tax consequence.
• Update conclusions for amendments, Finance Acts, Ordinances, rules and SROs issued before authorization of the financial statements when relevant to measurement.

Important limitation

The examples in this guide use a 30 percent rate solely to demonstrate the arithmetic. They are not statements of the current Bangladesh rate for any company category or assessment year. Engagement teams must replace illustrative inputs with verified law before using the calculation in financial statements or advice.

 

9. Year end working paper

A strong deferred tax file links every balance to an accounting amount, a tax-law conclusion and a clear recognition decision. The schedule below is the minimum recommended structure.

Field	Required content
Account or item	Asset, liability, loss or credit under review
Carrying amount	Closing financial statement balance
Tax base	Amount attributed for tax purposes with source reference
Temporary difference	Carrying amount less tax base
Classification	Taxable or deductible
Rate	Enacted or substantively enacted rate expected at reversal
Gross deferred tax	Temporary difference multiplied by rate
Recognition	Recognized, partially recognized or unrecognized with basis
Presentation	Profit or loss, OCI, equity or business combination
Reversal	Expected timing and manner of recovery or settlement
Evidence	Tax schedule, forecast, contract, loss register or legal provision
Review status	Preparer, reviewer, date and outstanding matters

 

Year end review checklist

• Reconcile carrying amounts to the final trial balance and financial statements.
• Reconcile tax bases to the latest tax computation and tax fixed-asset register.
• Separate temporary differences from permanent differences.
• Update rates for enacted or substantively enacted changes.
• Test whether the expected recovery method changes the applicable tax consequence.
• Reassess every DTA, including losses, credits and deductible temporary differences.
• Reassess previously unrecognized DTAs for new evidence.
• Apply recognition exceptions and document the paragraph-level rationale.
• Test offsetting by taxable entity and taxation authority.
• Trace tax recognized in OCI and equity to the underlying transactions.
• Prepare the tax-rate reconciliation and deferred tax disclosures.
• Obtain technical review of material judgments before sign-off.

10. Quick reference and glossary

Quick reference

Question	Answer
What creates deferred tax	A difference between carrying amount and tax base, or eligible unused losses or credits.
When is a DTL recognized	Generally for taxable temporary differences, subject to specified exceptions.
When is a DTA recognized	Only to the extent that future taxable profit is probable and legal utilization is available.
How is deferred tax measured	Using enacted or substantively enacted rates expected when the balance reverses.
Is deferred tax discounted	No.
How is it classified	As non-current.
Where is it recognized	Consistently with the underlying transaction: profit or loss, OCI, equity or acquisition accounting.
Can group companies offset	Only if all IAS 12 legal-right and settlement conditions are satisfied.
Does a permanent difference create deferred tax	No.
What changes in Bangladesh	The tax-law inputs, not the IAS 12 accounting model.

 

Glossary

Term	Meaning
Carrying amount	Amount at which an asset or liability is recognized in the statement of financial position.
Tax base	Amount attributed to an asset or liability for tax purposes.
Temporary difference	Difference between carrying amount and tax base.
Taxable temporary difference	Difference that produces taxable amounts when an asset is recovered or liability settled.
Deductible temporary difference	Difference that produces deductions when an asset is recovered or liability settled.
Deferred tax liability	Income tax payable in future periods relating to taxable temporary differences.
Deferred tax asset	Future tax benefit relating to deductible differences, unused losses or unused credits.
Substantively enacted	A tax measure sufficiently advanced in the legislative process that enactment is effectively assured under the applicable jurisdictional assessment.
Permanent difference	Accounting and tax difference that will not reverse in a future period.

 

Reference material

Primary references

• IFRS Foundation, IAS 12 Income Taxes, current issued standard and accompanying materials.
• IFRS Foundation, IAS 1 Presentation of Financial Statements, for presentation requirements applicable before IFRS 18 becomes effective for the entity.
• Bangladesh Financial Reporting Council publications and adopted financial reporting requirements.
• National Board of Revenue, Income Tax Act 2023, as amended.
• National Board of Revenue, relevant annual Finance Act or Ordinance, rules, SROs and income tax circulars.

Useful official websites

Source	Address
IFRS Foundation IAS 12	https://www.ifrs.org/issued-standards/list-of-standards/ias-12-income-taxes/
Bangladesh Financial Reporting Council	https://frc.gov.bd/
National Board of Revenue Income Tax Acts	https://nbr.gov.bd/regulations/acts/income-tax-acts/eng
National Board of Revenue Finance Acts	https://nbr.gov.bd/regulations/acts/finance-acts/eng
National Board of Revenue Income Tax Circulars	https://nbr.gov.bd/taxtypes/income-tax/income-tax-paripatra/eng

 

Document control

Item	Detail
Owner	G. Kibria & Co., Chartered Accountants
Intended audience	Audit, accounting, tax and advisory employees
Review trigger	Changes to IAS 12, presentation standards, Bangladesh tax law or firm methodology
Technical caution	This guide supports staff training and does not replace engagement-specific research, consultation or professional judgment.