Partial Amendments to Accounting Standard for Tax Effect Accounting

DEFERRED tax is determined by COMPARING the ACCOUNTING carrying amount of EACH asset and liability to its TAX BASIS – TEMPORARY DIFFERENCES (e.g. a provision recognised for accounting purposes but not yet tax-deductible) give rise to a DEFERRED TAX ASSET or LIABILITY, reflecting the FUTURE tax consequence when the difference eventually REVERSES.

Under DETAILED implementation guidance supplementing this Statement, companies are CATEGORISED into a STRUCTURED "COMPANY CLASSIFICATION" (会社分類) system – GENERALLY numbered Classifications 1 through 5 – based on OBJECTIVE, HISTORICAL and PROJECTED profitability indicators (e.g. consistent recent TAXABLE income, existence of tax loss CARRYFORWARDS, or history of SIGNIFICANT losses). Each CLASSIFICATION carries SPECIFIC, PRESCRIBED rules for HOW MUCH of a deferred tax asset may be recognised (e.g. companies in the STRONGEST classification may recognise deferred tax assets FULLY, while companies in WEAKER classifications face INCREASINGLY restrictive limits, potentially permitting recognition ONLY for temporary differences expected to REVERSE within a limited future period, or NONE at all for the WEAKEST classification). This STRUCTURED, TIERED, RULE-BASED approach is a genuinely DISTINCTIVE J-GAAP feature – MORE PRESCRIPTIVE and FORMULA-DRIVEN than the MORE JUDGEMENT-BASED "probable"/"more likely than not" recoverability tests applied under IAS 12 and ASC 740, even though the UNDERLYING economic QUESTION (will future taxable income be sufficient?) is fundamentally the SAME.