Lecture 7 - Income Tax Pt 2 Flashcards
temporary differences?
difference which causes either a deferred tax liability or asset
permanent differences?
differences that will be prevalent in all periods
e.g., non deductible expense that shows up every period
deferred tax?
tax that is carried forward to the following period
taxable temporary differences
result in taxable amounts of future periods
give rise to deferred tax liabilities
deductible temporary differences
result in taxable deductions of future periods
give rise to deferred tax assets
how are deferred tax assets treated in future periods?
e.g., overprovision from previous period will be deducted from tax liability in current period
define taxable
define deductible
taxable = subject to the income tax computation
deductible = not subject to the income tax computation and is removed either by adding expenses back or subtracting income
how to calculate temporary difference?
carrying amount - tax base
e.g., depreciation of asset is expected to be 2,000 but for tax purposes it is 1,000, the temporary difference is 1,000
deferred income tax =
temporary difference x tax rate
tax base?
the amount that the tax authorities attribute to assets/liabilities for tax purposes
deferred tax asset?
amount that future tax liabilities can be offset by
recognition of deferred tax in FS?
DTL: dr tax exp, cr tax liability
DTA: dr tax asset, cr tax exp
if accrued income is recognised in the current/following period by tax authorities…
current = doesn’t result in DTL
future = results in DTL
if trade payable is recognised in the current/following period by tax authorities…
current = doesn’t result in DTA
future = results in DTA
deferred tax is based on…
temporary differences
