Explain Deferred Tax with an example?
This query is : Resolved
18 December 2009
What is the treatment of deferred tax in accounts?When it will become NIL?
18 December 2009
Ms. Gayathri; I explained deferred tax previously without getting any thanks from your side !
The example is like that :
Tax payable as per books : 10000
Tax payable as per computation : 4000
So in future ultimately you have to pay Rs.6,000/- as income tax. This is treated as Deferred Tax Liability. The opposite is Deferred Tax Asset.
When book profits and computed profits under Income tax are same then deferred tax will be nil.
Theoritically; at one point of time; the difference will be set off.
But practically; the difference will continue because there will always be a difference in book profits and computed profits.
CA Rakhecha,Surat
The example is like that :
Tax payable as per books : 10000
Tax payable as per computation : 4000
So in future ultimately you have to pay Rs.6,000/- as income tax. This is treated as Deferred Tax Liability. The opposite is Deferred Tax Asset.
When book profits and computed profits under Income tax are same then deferred tax will be nil.
Theoritically; at one point of time; the difference will be set off.
But practically; the difference will continue because there will always be a difference in book profits and computed profits.
CA Rakhecha,Surat
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18 December 2009
.
Message likes :
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25 February 2012
Pl see the points given below.
1.Source:-
AS-22 deals with deferred tax.
2.Focus;-
It is based on the matching concept.
3.Reason:-
Accounting income and taxable income may differ on account of various reasons.
4.Measurement;-
The difference as aforesaid is itemized and permanent differences are eliminated. The rest is called timing difference.
5.Timing difference;-
Those differences which lead to either saving in tax or payment of tax in the current year in the manner that such saving or payment is nullified in later years.
6.Recognition;-
Deferred tax should be recognized for all timing differences subject to consideration of prudence in respect of deferred tax assets.
7.Rates;-
deferred tax is to be recognized using the tax rates that have been enacted on the balance sheet date. If not enacted can be measured on the tax laws that have been substantially enacted as on the b/s date.
8. Positioning;-
deferred tax asset/liability should be disclosed separately from current assets and current liabilities in the b/s.
9.Disclosure;-
In the notes on accounts compliance of AS 22 may be mentioned as well as the workings of the deferred tax may be given.
1.Source:-
AS-22 deals with deferred tax.
2.Focus;-
It is based on the matching concept.
3.Reason:-
Accounting income and taxable income may differ on account of various reasons.
4.Measurement;-
The difference as aforesaid is itemized and permanent differences are eliminated. The rest is called timing difference.
5.Timing difference;-
Those differences which lead to either saving in tax or payment of tax in the current year in the manner that such saving or payment is nullified in later years.
6.Recognition;-
Deferred tax should be recognized for all timing differences subject to consideration of prudence in respect of deferred tax assets.
7.Rates;-
deferred tax is to be recognized using the tax rates that have been enacted on the balance sheet date. If not enacted can be measured on the tax laws that have been substantially enacted as on the b/s date.
8. Positioning;-
deferred tax asset/liability should be disclosed separately from current assets and current liabilities in the b/s.
9.Disclosure;-
In the notes on accounts compliance of AS 22 may be mentioned as well as the workings of the deferred tax may be given.
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