Deferred Tax

Question 1

Deferred tax on losses cfwd

Answer 1

Losses can be carried forward and offset against future profits

Therefore in the future the company will pay less tax

A deferred tax asset needs recognising

The 1000 loss will give rise to a 200 tax relief in the futute (1000*20%)

Therefore a deferred tax asset of 200 needs recognising

DR DT asset 200
CR Pnl 200

Question 2

Defined benefit contribution scheme and deffered tax

Answer 2

Relief if given when the pension contribution is actually paid rather than the period in which it relates.

Therefore any unpaid contibutions at the year end will be tax relief in the futre

Therefore a deferred tax asset needs recognising

DTA = tax relief in future