Def tax by wdv diff and inc diff methods to be same...

K Sankar Ra (proprietor) (140 Points)

11 July 2016  
Deferred tax calculated on the diff between the book WDV and tax WDV of fixed assets yields the cumulative net deferred tax liability or asset for each year. The diff between the cumulative net figures calculated for 2 successive years under this method, will yield the deferred tax asset or liability for the year. And, this figure must tally with the same figure for that year, calculated under the 2nd method described below. Deferred tax calculated on the diff beteeen taxable income and book pre-tax profit, yields the deferred tax liability or asset for a particular year. There should not be any difference in the deferred tax amounts for any year, whether calculated under one or the other method. For clarification on this, one may refer to pages 296 & 297 0f Accounting text & cases by Anthony, Hawkins & Merchant, 13th edition.