Professional Documents
Culture Documents
D EFER R ED TA X ATIO N
IMPORTANT ABBERIVIATIONS:
TD stands for Temporary Difference
PD stands for Permanent Difference which
cannot be reversed in the future periods
TTD stands for Taxable Temporary Difference
DTD stands for Deductible Temporary
Difference
CA stands for Carrying Amount
TB stands for Tax Base
When those TD will be reversed in the future
periods is called DTD (Inflow).
When those TD will be settled in the future
periods is called TTD (Outflow).
Assets
Liabiliies
TTD
CA>TB
CA<TBDTL
DTD
CA=TB
DTA
DTD
DTA
TTD
NO TD
DTL
NO DT
Y4
20
0
20
6
0
0
0
0
4.5
1.5
(6)
Accounting
Profit
+ Accounting
Y1
100
20
Y2
110
20
Y3
120
20
Y4
150
20
Y5
160
20
Depreciation
- Tax Dep.
(25)
(25)
(25)
(25) (25)
Taxable Profit
95
105
115
145
180
Current Tax
28.5
31.5
34.5
43.5
54
@ 30%
Tax Expense= Current Tax + Deferred Tax
Tax Expense
30
33
36
45
48
Accounting
Profit @ 30 %
30
33
36
45
48
Tax Book
1) Prepaid Expenses:
1st Jan:
Prepaid Rent
100
To Bank
100
31st Jan:
Rent Expense
Rent Expense
100
50
To Prepaid Rent 50
To Bank
100
2) Unearned Income:
Accounting Book
1st Jan:
Bank
200
Bank
To Unearned
Income
31st Jan:
Unearned
Income
Tax Book
200
100
To Income
100
200
To Income 200
3) Accrued Income:
Accounting Book
1st Jan:
Accrued Income 500
500
To Income
500
500
31st Jan:
Cash
To accrued
Income
500
500
Tax Book
Accrued Income
To Income
4) Accrued Expenses:
Accounting Book
1at Jan:
Expense 150
To Accrued
150
Expense
31st Jan:
Accrued
150
Expense
TO Cash
150
Tax Book
Expense
150
To Accrued
150
Expense
CA
TYPE TAX
Prepaid Rent
TTD
DTL
Unearned
DTD
DTA
Income
Accrued
NTD
NT
Income
Accrued
NTD
NT
50
TB
0
50
100
500
500
150
TD
150
100
Goodwill:
No deferred Tax on internally generated
Goodwill.
Initial recognition of asset/liability:
Asset Cost =
100 million
Govt. Grant =
(50) million
CA
=
50
Note:
Tax authority does not accept grant. They
consider Tax Base of 100 million. It is not a
Temporary Difference. It is a Permanent
Difference.
Revaluation of Asset:
Suppose asset CA= 100 m
Revaluation Value= 150 m
YEAR 1
Asset
50
= 150
To
R.R. 50
(100)
CA
TB =
TD
= 50
Note: Deferred tax arise due to R.R.
should be sent to equity or R.R.
15
To Deferred Tax Liability
15
15
YEAR 2
Revaluation depreciation of asset = 50@10%
=5
CA of revalued asset = 45
Tax Base
= 0
TTD
= 45@ 30% = 13.5
1.5
(Settlement
1.5
Tax)
Closing 13.5
15
15
Foreign Payables\Receivables:
Foreign Payables= US $ 10000@85 = Rs. 850000 (at
start)
Foreign Payables=US $ 10000@90 = Rs. (900000)
( At closing date)
Exchange Loss
= Rs. (50000)
Exchange Loss 50000
To Foreign Payables 50000
Foreign Payables
CA
TB
900000 850000
DTD
DTA
50000 15000
@ 30%
15000