(a) When preparing financial statements it is important to ensure that the tax consequences of all transactions are appropriately recognised. IAS 12 – Income Taxes – prescribes the treatment of both current and deferred tax assets and liabilities.

Current tax is the amount of income tax payable or recoverable in respect of the taxable profit or tax loss for a period. Deferred tax is tax on temporary differences. A temporary difference is the difference between the carrying amount of an asset or liability and its tax base. A taxable temporary difference leads to a potential deferred tax liability and a deductible temporary difference leads to a potential deferred tax asset.

Required: 
Explain how the tax base of both an asset and a liability is computed and state the general requirements of IAS 12 regarding the recognition of both deferred tax liabilities and deferred tax assets. You do not need to identify any of the exceptions to these general requirements which are set out in IAS 12. (5 marks)