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Deferred tax entry

Nisha Yadav (Accounts exe) (455 Points)

10 May 2013

Dear all,

Please let me know wht entry should be pass:

In financial year 2011-12.. deferred tax laibilty was 11000 so i passed entry

Deffred tax dr(P & L) 11000

To Deffered tax laibilty 11000

In finacial year 2012-13 deferred tax asset arise with amount 10000/-

Now what entry Should be passed ?

I made a entry - Deferred Tax laibilty dr 10000/-

To Deffred tax (P& L) 10000/-

Is it correct ? if not please help me :(

Thanks to all

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3 Replies

Devendra (Chartered Accountant) (4775 Points)
Replied 10 May 2013

In the first year, as the Depreciation as per IT Act was more than Depreciation as per Books, hence Deferred Tax Liability was created, whereas in the second year Depreciation as per IT Act must be less than Depreciation as per Books, hence Deferred Tax Asset is created.

Accordingly, in the first year the there is a difference in the profits due to depreciation which affects the Tax liability (ie. Tax liability to deferred to future years)

While in the second year as more Tax is required to be paid as the Depreciation as per Books is more than Depreciation as per IT Act, hence the Deferred Tax Liablilty created shall be reduced.

Therefore, to show the above transactions the Journal Entries passed by you are Correct.

Regards,

Devendra Kulkarni

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Nisha Yadav (Accounts exe) (455 Points)
Replied 10 May 2013

Thanks for valuable reply :)

k.manikanta swamy (Student CA IPC / IPCC) (32 Points)
Replied 11 May 2015

let suppose the liability for the year 2013-14 is 5000

then it is shown as current liability in balance sheet and it should be reduced from profit before tax while calculating profits. (2013-14).

let suppose the liability for 2014-15 is 6000

then the carry forwarded liability of 5000 should be treated as opening deferred tax liability. 1000 should be reduced from profit before tax in the year 2014-15. i.e, (6000-5000).

6000 is shown in current year balance sheet as deferred tax liability.(2014-15).

if there is a deferred tax asset in the year 2014-15 of 4000. then entry is to be reversed. it should be reduced from current year profit and loss account.

deferred tax asset account dr 4000

to profit and loss account 4000

then the original entry of 6000 is to be posted actually.

profit and loss account a/c dr 6000

to deferred tax liability a/c 6000.

then there is a net effect of 2000 appears in profit and loss account indirectly.

then in balance sheeet 6000 to be shown as current liability and 4000 is to be shown as current asset.

the treatment made by you is correct but the treatment in balance sheet should be made properly. we cannot treat deferred tax asset and profit and loss account as same as u mentioned above. seperate accounts to be opened for both deferred tax asset and deferred tax liability for proper accounting tratment and understanding.

i hope you will understand. thank you