Taxation

Question 1

Deferred tax

Definition
When
DR and Cr

Answer 1

Accounting adjustment to match taxes in occurring in different periods, happens when:

Making a adjustment for temporary difference and when recognising future taxes such as a depreciation charge for an asset in future years

Dr (P&L) Income tax expense
Cr (SFP) Deferred tax liability

Question 2

Temporary difference

Answer 2

Difference between the carrying value of assets and liabilities compared to the tax base

Tax base = value of assets and liabilities for tax purposes

Question 3

Revaluation gains

Answer 3

Deferred tax must be recognised on revaluation gains.

Dr (SFP) revaluation surplus
Cr (SFP) deferred tax provision

Question 4

Tax losses

Answer 4

Company’s can carry forward tax losses to go against future profits

If the company can foresee using the tax losses against future profits, it would be able to be include a deferred tax asset. This would be the amount of savings not the loss i.e 2015 loss of 1m c/f to 2016 and in 2016 taxable profit of 1.5m. the tax is 1.5m-1m x 30% = 150K. Whereas if no losses 1.5m x 30%= 450K. Deferred tax asset is 450-150=300k

Question 5

Disclosure

Answer 5

Needed for the disclosure of the differences between taxable profits and accounting profits