deferred tax liability and asset

there is some differnce in the profits calculated

as per income tax act

and companies act

so the tax is calculated on the two profits

and the difference of those is deffered tax asset/ liability

when there is some difference between accounting income and taxable income then DTA/DTA created.

Like in accounts ur NP is 150000.

nd in tax NP is 100000.  

then tax will be calculated on Rs. 100000.  

diff in accounting and taxation income is rs. 50000. on this amount DTA/DTL is created.

Here you go....

Temporary differences - are referred to as "Timing difference" as with time they reverses

Permanent difference -are forever - they do not reverse

Example -1

Entries in Yr1

Income tax expense    DR 22

Income tax payable     CR 20

Deferred tax liability      CR 2

Entries in Yr 2

Income tax expense     DR 20

Deferred tax liability       DR 2

Income tax payable     CR 22

Example-2

Assuming that parliament has approved tax rate for Yr 2 in Yr 1

Entries in Yr1

Income tax expense     DR 23 (20% on 100 and 30% on 10)

Income tax payable     CR 20

Deferred tax liability      CR 3

Entries in Yr 2

Income tax expense     DR 30

Deferred tax liability       DR 3

Income tax payable      CR 33

Example -3

Assuming :

1. Temporary diff will reversed Yr 2 & 3 equally ie 10

2. tax rate passed by parliament in Yr 1 for Yr 2 and Yr 3

Entries in Yr 1

Income tax expense     DR 27 (20% on 100, 30% on 10 and 40% on 10)

Income tax payable      CR 20

Deferred tax liability       CR 7

Entries in Yr 2

Income tax expense      DR 30

Deferred tax liability        DR 3

Income tax payable      CR 33

Entries in Yr 3

Income tax expense      DR 40

Deferred tax liability       DR 4

Income tax payable      CR 44

Example-4

same information from Example-1

assuming in Yr - 2, parliament passed income tax rate of 30% for Yr 2

now adjustment entry need to be posted

Entry in Yr 2

Income tax expense     DR 1

Deferred tax liability     CR 1

and then..

Income tax expense    DR 30

Deferred tax liability      DR 3

Income tax payable     CR 33