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What is deferred tax asset or libility ? please help with
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Answer / s.malleswara rao
Entities prepare Profit and Loss account on the basis of
Accounting Standards. Tax on Income is paid according to
Income Tax Act. There are some allowances, disallowances as
per Income Tax Act. As a result, accounting profit and
income for taxation differs. The difference may be
permanent or temporary. Permanent Difference do not result
in Deferred Tax Asset/Liability. Temporary Difference
results in Deferred Tax Asset / Liability. All this
position can be clearly understood by examining the
following example.
For Example: Book Profit Before Depreciation as per Profit
and Loss A/c Rs.3 lacs, Depreciation as per Companies Act
Rs.1 lac. Depreciation allowable under Income Tax Act is
Rs.1.5 lacs.
In this case Book Profit after Depreciation comes to Rs.2
lacs (i.e Rs.3 lacs - 1 lac)
Income for the purpose of Income tax is Rs.1.5 lacs (i.e
Rs.3 lacs - 1.5 lacs)
Thus there is a difference between accounting/book profit
and Profit for Income tax purpose. In this connection, it
may need not be said the difference is due to difference in
Depreciation. This portion of depreciation is accounted for
in course of time. However, income tax is paid on income as
per the provisions of Income Tax Act. Now Income tax is
paid less for the current year. Therefore, you have to pay
tax on difference due to change in depreciation in later
period. So you have to create Deferred Tax Liability (DTL)
in current account period to nullify the effect on Book
Profit.
Reverse is the case of Deferred Tax Asset (DTA). One day or
the other, DTA or DTL will become Nil if there is no moment
in Fixed Assets.
Hope this answer clears the doubt to some extent.
| Is This Answer Correct ? | 17 Yes | 1 No |
Answer / rajendran
Deffered tax asset or liability is arises due to timing
difference.
If the company pays taxes based on IT act and the taxable
income tends to be low due to higher rate of depreciation
under IT act then DTL arises to the company.
On the contrary,if the company pays higher taxes due to
lower rate of depreciation as per IT act , then DTA arises
to the company.
It is due to other factor such as;
Disallowances made as per IT act
| Is This Answer Correct ? | 10 Yes | 1 No |
Answer / tejas birajdar
Below are the Taxes of Asset & liability side of BS
Tax assets are includes TDS receivable, VAT paid & Advance
tax
Tax liablities are - ESI collected, PF collected, PT
collected, VAT collected & TDS collected
If we paid advance tax & at the end of the year we found
the income tax is paid more than the actual liablity it
appeares to our BS as Tax asset.
| Is This Answer Correct ? | 3 Yes | 3 No |
Answer / barodianbuddy(acca)
deferred tax arises because accounting profit will not be equal to taxable profit. The reason can be split into 2 categories:
1. permanent difference:- items that would have been used in calculating accounting profit but would not be used in calculating taxable profit. eg entertaining expenses (UK tax)
2. TEMPORARY DIFFERENCE:- Items that would have been used in calculating accounting profit and taxable profit but in different accounting periods. eg depreciation/tax allowances.
IAS 12 considers only the temporary differences.
| Is This Answer Correct ? | 0 Yes | 0 No |
Answer / mohd rayees
Tax assets : tax assets its consists that assets which come
under capital gain, ex : Jewellery (gold), Buildings etc.
Tax Liability : tax liability its mean we have to pay the
taxable amount are called tax liability. (Mohd Rayees,
cont : 9908841874)
| Is This Answer Correct ? | 4 Yes | 18 No |
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