Chapter 22 - Deferred Taxes

Question 1

Deferred Taxes

Answer 1

Arises because of Timing and temporary differences

They do not arise because of permanent differences

Question 2

Deferred Tax examples

Answer 2

Difference in useful life of assets considered for acc and tax purposes

Business losses which can be carried forward and set off against taxable gains

Question 3

Permanent Difference

Answer 3

Any expense which gets additional deduction or is not allowed as deduction

Question 4

Deferred Tax Liability

Answer 4

The difference arising When the tax base of an asset is less than the book value

Question 5

December 2006
Book Value = $550,000
Tax Value = $500,000

2006 Tax rate 25%
2007 Tax rare 30%

Deferred Tax?

Answer 5

$550,000 - $500,000
= $50,000 difference

Tax rate is the one expected to apply when the liability is settled (2007)

30% x $50,000 = $15,000
Deferred Tax Liability