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/ 39
Depreciation 1 000
Tax depreciation 800
Tax rate 20%
Deferred tax????
Deferred Tax: The Only Way to Learn It
by Silvia
@ PROVISIONS AND OTHER LIABILITIES Be
Deferred tax is neither deferred, nor tax: it is an accounting measure, more specifically an
accrual for tax.
I'm very proud to publish the first guest post ever in this website, written by Professor
Robin Joyce FCCA who will explain you, in a detail, how to understand deferred taxation
and how to tackle it in a logical way.
This article reflects the opinions and explanations of Robin and | must say his approach is
very fresh and maybe a bit unconventional. Here’s what he has to say about deferred tax: . Knowledge of accruals and tax are needed for timing differences (the main component)
Tax losses and tax credits will be discussed later,
Note to accountants, auditors, bank
examiners and supervisors
Failure to accrue for tax falsely inflates profits, equity and (for banks) prudential capital by
including pre-tax profits, instead of post-tax profits.
This can inflate earnings per share in a public company.
Earnings per share (EPS) is a key stock market indicator which feeds into the Price
Earnings ratio, The Price Earnings (PE) ratio directly impacts stocks market valuations.
Where this arises, the Earnings for the EPS and PE could be dramatically misleading,
leading to unjustifiable stock market valuations and/or unearned executive bonuses
being paid
Basics of Accrual Accounting (some may
surprise you)
1. Accrual accounting is an economic presentation of financial statements.
The acerual presentation normally differs from a presentation based on cash
accounting, to reflect timing differences between cash flows and economic
events
2, Standards (IFRS, National Standards, Central Bank Regulations) can only do two
things:
@ They can move profit (or loss) from period to period.
This is what happens when cash accounts are transformed to accrual
accounts, in transformations from national accounts to IFRS and in
consolidations. Standards can neither create, nor destroy, profit, as the
ultimate profit (or loss) will be measured in a cash increase, or decrease. ° Standards provide rules on format of presentation.
Learn deferred tax and many other IFRS topics in our videos! Have you already
checked out the IFRS Kit? It's a full IFRS learning package with more than 80
private video tutorials, more than 100 IFRS case studies solved in Excel. more
than 150 pages of handouts and many bonuses included. If you take action today
and subscribe to the IFRS Kit, youll get it at discount! Click here to check it out!
3. Ifincome, or expense. is accrued (or reduced by prepayments) in the period, more
(or less) profit (or loss) will be generated, If the additional profit (or loss) will be taxed
immediately, the tax charge for the period will reflect this by increasing, or
decreasing
If the additional tax (or tax credit - the benefit of paying less tax) will be generated
in a later period, an accrual for that tax is required in this current period to match
the period of the economic activity.
4, Revaluations are accruals of profits/gains and losses that have yet to be realized
The result may appear in the income statement. or reserves (via the Other
Comprehensive Income statement). An impairment is an accrual for loss.
Such accruals for profits and losses will be matched with an accrual for tax, unless
the profit (or loss) will never be subject to tax
5, Accruals are created, sometimes changed and reversed, Invoices and charges are
paid, not accruals
Deferred tax - timing differences
fan income or expense (which creates a profit or loss) is taxed in the same period that it
appears in the income statement, or equity (such as share issue costs) the tax charge for
the year will reflect this and no further action is required.
If the income, or expense, is taxed wholly or partially in another period, an accrual for tax
is needed in this period to reflect this,
This is a timing difference, between the economic event and the taxation. Deferred Tax arises from the analysis of the differences between the taxable profit and
the accounting profit. These differences arise from the treatment of a transaction
differing within the financial and taxation accounts.
* The differences can be classed as permanent, or temporary timing differences
© An example of a permanent difference is the receipt of a tax free government
grant. or similar incentive. This is clearly part of the accounting profit, but it will
never be part of the taxable profit. No further accounting is necessary in
future periods for permanent differences.
© An example of a temporary timing difference occurs when the tax and
accounting depreciation of an asset differ. They can arise from differing useful
lives, o differing depreciation methods, for example reducing balance and
straight line,
* In order to normalize the earnings, we need to normalize the tax charge. This is
done by adding a deferred tax charge to the mainstream tax charge. The deferred
tax charge is the value of the temporary timing differences at the current rate of tax
enacted for the future periods
Permanent differences are no longer referred to in JAS 22, but have been included here
to clarify when not to make an accrual for tax (as no further tax is payable, nor
receivable)
Temporary timing difference - revenue/revaluation
(Debits are shown as +, credits shown as -, tax is 20%)
Example: Revaluation Gain
2 2
Descrip =X X
tion x x
30 4
Revalu ~|°
ation
°
jain
g: ° A Tax
°
- 2
Net
°
effect
on P/L
In this example, our revaluation may be for any asset: IAS 40, IAS 39, IFRS 9 in the Income
Statement, IAS 16 or IAS 38 in Other Comprehensive Income (logic identical.
The gain is booked in 2XX3, but no tax is levied until the following period, when the asset
is sold for its revalued carrying value.
Js there a problem with this presentation? Yes, as at the end of 2XX3, shareholders will
be presented with the following financial statement
2
Descrip Xx
tion x
3
Revalu .
1
ation
gain
Tax °
Net
effect
°
on P/L
° Shareholders will want a dividend of 100. |f paid, then there will be no cash to pay the
tax bill of 20 the following year.
In practice, our apparent gain of 100 is only 80 after tax. Our presentation has overstated
the profit.
An accrual for tax is needed in 2XX3, which will be reversed in 2XX4 when the tax is
levied
2 2
Descrip X Xx
tion x Xx
3 4
- 0
Revalu
ation
gain
o 2
Tax
o
Net - 2
effect a °
on P/L
before
tax
accrual
Tax
o 2
accrual Net 8 °
effect °
on P/L
This is the full accrual presentation, The revaluation is an accrual for profit/gain, which is
matched by an accrual for tax.
(The accrual for tax is wrongly called ‘deferred tax. It is not: the tax is next to the line
labeled tax and nothing is deferred. It is not tax: it is an accrual for tax.)
Example: Revaluation Loss
Arevaluation loss and accrued tax credit would be shown as:
2 2
Descrip XX
tion x x
3 4
Revalu = 2
ation
loss
Tax eyo
credit
°
Net 2 -
effect
onP/L 0s
before
tax
accrual Tax
4 0
accrual
°
Net 1 0
effect
on P/L
Timing difference - expense including depreciation
Expenses generally follow a similar treatment to the revaluation loss above. if the timing
difference is between two consecutive years
In the case of non-current assets (IAS 16, 38, 40), if the economic life used in the financial
books is the same as the life used for tax purposes, depreciation/amortization is
charged each year and fully allowed for tax: there is no timing difference and no accrual
for tax,
Correct application of IAS 16, 38, 40 (and 17) requires the economic life to be used, even
if it differs from the life used by tax authorities.
Where it differs, accruals for tax (debits or credits) are required, They are required for
presentation purposes (that is what accrual accounting is) but do not change any tax
benefit, as they are not tax components, only accruals.
After being created, they may change from period to period. On disposal or expiry of the
asset, any remaining accrual will be reversed.
Example: Non-Current Asset 1
YoY Y Y oY
ee eee
Balance
a oaoaoaoa
e Sheet
r r r r r Cost
ooo
Depreci
ation
oo°
oo °0
oo °
We buy an Automatic Teller Machine (ATM; ‘bankomat) for our bank,
The cost is 3 000. It is expected to last only 3 years as it will be used in a busy city center
We depreciate the cost over 3 years.
The tax benefit (tax depreciation) will only be given over 4 years in this example, as
there is one ‘tax life for all of the country’s ATMs.
This creates a timing difference between the commercial depreciation (3 years) and the
tax depreciation (4 years).
We record the tax depreciation off-balance sheet
YoY Y Y oY
Off- e ee ee
Balanc a oaoaoaoa
e Sheet r r e r r
o 12 2 3 4
Tax
ooo Tax
7 7 °7°~°7
depreci
5 5 5 5
ation
0 0 0 0
- eo
30 2 2 7
Tax
o 2
base 5 | §
°o 5 0
fo} ° °
(This identifies 'tax base’ as some people use this in such calculations. We do not use it
here)
The tax rate is 20% in our examples, so the tax benefit will be a total of 3.000 * 20% - 600.
This will be spread over years 1-4: a benefit of 150 each year.
Our income statements (extract) will appear as:
YoY oY oY oy¥
Income e e@ e@ e e
Statem ao oaoaoaeioa
ent ror or or ofr
o 4a 2 3 4
1 40041
Depreci 0 0 0
ation 0 0 0
0 0 0
Tax at 24 4 4
20% 5 5 5 Net
effect
on P/L
Is there a problem?
Yes: not only does year 4 show a tax credit without a depreciation expense, but years 1-3,
show an effective tax rate of 15% (150/100) rather than 20%.
To improve the economic presentation (the purpose of accrual accounting), we need to
create a tax accrual in year 1. change it in years 2 and 3 and reverse it in year 4
YoY Y Y oY
Income e@ e@ e@ e e
Statem ao oaoaoaioa
ent ror or ror
o a 2 3 4
a
Depreci 0 0 0
ation 0 0 0
o 0 0
Tax at a 40404
20% 5 5 5 Net
effect -
8 8 8
on P/L a
5
before
°
tax
accrual
- - - 1
Tax
5 5
accrual
°
Net 8 8 8 o
effect °
on P/L °
You calculate the expected result (800) first, then calculate the difference for the tax
accrual (-50). The sign must be correct for the tax accrual
The tax accrual improves the economic presentation, but has no impact whatsoever on
when the tax is credited,
The bookkeeping of the tax accrual in the balance sheet is the same amount, but
opposite sign
Y Y Y YY
ee e ee
Balane
aoaoaoaeoa
e Sheet
r r r r r
o 21 2 3 4
5 5 -
Tax 0 0 0 1
accrual The cumulative numbers in the balance sheet (as this year's number is added to the
amount from last year) are
y Y Y Y ¥
ee e ee
Balanc
aoaoaoaoa
e Sheet
ror or or ofr
o 41 2 3 4
5 5 -
Tax 0 0 0 41
accrual
Tax 5 2 1 0
accrual o 0 5
cummu
lative
The final question is whether the tax accrual (cumulative) is a deferred tax asset ora
deferred tax liability. We have used debits and credits accurately. We have a debit
value. A debit value in the balance sheet is an asset.
Control number to eliminate error
If the cumulative figure in the final year (year 4 in this example) is zero (0), then the
calculations are correct, if the sign of the tax accrual in the income statement is correct.
Changes in tax rates
If the national tax rate changes, the tax figures and the tax accrual figures for the relevant
future periods will be updated
Example: Non-Current Asset 2 We buy an Automatic Teller Machine (ATM, bankomat) for our bank. The cost is 1.000. It
is expected to last 5 years as it will be used in a quiet village. We depreciate the cost
over 5 years.
Y Y Y Y Y Y
e e e e ee
Balance
aoaoaoaoaeoa
e Sheet
ror or fo ror
° a 2 3 4 5
1
o
Cost
o
o
Depreci 2 2 2 2
ation ° ° ° Oo
° ° °
The tax benefit (tax depreciation) will be given over 4 years in this example, as there is
one ‘tax life’ for all of the country’s ATMs,
This creates a timing difference between the financial depreciation (5 years) and the tax
depreciation (4 years).
We record the tax depreciation off-balance sheet!
Y Y Y Y YoY
Off- e e e e e e
Balanc a oaoaoaoaeoa
e Sheet r r r r r e 1
Tax °
o
o
= eee
Tax
2 2 2
depreci
5 5
ation
°
- ee Oo
1 07 5 2
Tax
Oo
base 5 5
o 0
o
The tax rate is 20% in our examples, so the tax benefit will be a total of 1000 * 20% = 200.
This will be spread over years 1-4: a benefit of 50 each year,
Our income statements (extract) will appear as:
YoY oY Y Y ¥
Income e e e e e e
Stem ao oaoaoaoaeoa
ent ror of of fof
o a2 2 3 4 5
2 2 2
Depreci
° oo
ation Tax at
20% 5 5
°
Net 1 1 1 1 2
effect 5 5 5 5 0
on P/L o0 0 © o °
Is there a problem?
Yes: not only does year 5 show no tax credit, but years 1-4 show an effective tax rate of
25% (50/200) rather than 20%
To improve the economic presentation (the purpose of accrual accounting), we need to
create a tax accrual in year 1, change it in years 2, 3 and 4,then reverse it in year 5:
YoY oY Y Y oY
Income e e e e e e
Statem aoa aaa a
ent r r r r r r
o a 2 3 4 5
2 2 2
Depreci
o oo
ation
o ° °
- = =e 8
Tax at
20% 5) 8 Net 1 1 1 1 2
effect 5 5 5 5 0
on P/L 0 oo © © °
before
tax
accrual
1 1 -
Tax
0 0 © ©
accrual
Net 1 1 1 1
effect
on P/L 0 0 © o °
You calculate the expected result (160) first, then calculate the difference for the tax
accrual (10). The sign must be correct for the tax accrual.
The tax accrual improves the economic presentation, but has no impact whatsoever on
when the tax is credited,
The bookkeeping of the tax accrual in the balance sheet is the same amount, but
opposite sign
y oY Y Y Y oY
ee e e ee
Balanc
aoaoaoaoaeoa
e Sheet
ror ofr fr ofr oF
o 2 2 3 4 5
-
Tax
1 4 1 40
accrual The cumulative numbers in the balance sheet (as this year's number is added to the
amount from last year) are
YoY Y Y Y oY
ee e e ee
Balanc
aoaoaoaoaeoa
e Sheet
ror or or or ofr
o a2 2 3 4 5
-
Tax
204 44
accrual
0 0 0 o
Tax - = ee 8
accrual 1 02003
cumula 0 0 0 o
tive
The final question is whether the tax accrual (cumulative) is a deferred tax asset, or a
deferred tax liability.
We have used debits and credits accurately. We have a credit value. A credit value in the
balance sheet is a liability.
‘The model has the past, present and future income statement and balance sheet
numbers and a control number to ensure accuracy. It is @ perfect record to use and
audit,
Learn deferred tax and many other IFRS topics in our videos! Have you already
checked out the IFRS Kit? Its a full IFRS learning package with more than 70 private
video tutorials, more than 100 IFRS case studies solved in Excel, more than 120 pages
of handouts and many bonuses included. If you take action today and subscribe to the
IFRS Kit, youll get it at discount! Click here to check it out! The model can be used for revenue and costs, if the debits and credits are accurate, The
model can be reduced in size for any accrual used for only 2 years to one similar to that
used above for revenue
Tax losses and tax credits
In the bucket marked ‘deferred tax’ are timing differences, tax losses and tax credits.
In most countries, if you made a loss last year, you can pay less tax this year on your
profits. Similarly, a tax credit (to pay less tax) may be given by the government as an
incentive, rather than a cash grant.
Both tax losses and tax credits are components of tax. They will reduce your tax bill.
Timing differences are accruals for tax. In contrast, they will not have any impact on your
tax bill whatsoever. They are not tax. They are accruals for tax. By throwing them in the
‘same bucket as tax losses and tax credits and calling them ‘deferred tax, confusion is
allowed to reign
Tax knowledge required
If there
impact on the current period's tax bill, you need to assess whether there will be a tax
an accrual, or revaluation, which increases (or decreases) profit, but has no
charge (or credit) when the profit (or loss) is realized, If so, an accrual for tax is needed,
If in doubt, accrue the tax.
You need to identify if there are timing differences for non-current assets.
Ifyou move prof from one period to another, accrue the tax so that a movement of
profit of 100 has a net impact of 80, after the accrual for tax at 20% (Adjust the number to
your tax rate, if different)
Conclusion
Timing differences are the most common part of what is called ‘deferred tax. Ifyou can
accrue for tax, in the same way that you make other accruals, the job will be done. You do not need to use ‘tax base’ or worry whether it is based on the ‘balance sheet or
‘income statement methods, Just make the tax accruals.
Deferred tax is neither deferred, nor tax: it is an accrual for tax.
Acknowledgement:
| would like to express my thanks to Silvia Mahutova FCCA for hosting this article.
About the Author
Professor Robin Joyce runs IFRS courses in Russian and English in Moscow at the
Association of Russian Banks.
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61 Comments
DILIP ASHER September 20, 2021 at 11:19 am
Very comprehensive and interesting, Vertical presentation of amounts of CU
in the examples at first created confusion for me, but then understood.
@ Reply
Hameed July 4, 2021 at 1245 pm
How do you manage to answer so many questions?
@ Reply
Silvia July 5, 2021 at 8:53.am
The truth is | answer only some questions - those that are
not too specific and can help many users, because otherwise |
would not have time to do anything else. | appreciate all
comments and questions, though. Have a nice day!
@ Reply Thomas Ferdi May 4.2021 at 5:36. am
Thanks Silvia, That's Very helpful and | really appreciate your effort,
@ Reply
Tilahun B April 9, 2021 at 12:01pm
This is really very interesting insight and helpful for accountants who are
struggling in the area. Keep it up
Thank your so much !
@ Reply
Hanna January 24, 2020 at 1222 pm
Thank you for your efforts | really appreciate it
Since | discovered your site it became my reference in terms of IFRS IAS
standards, and Im learning
Thanks again
@ Reply
Anees azam January 3.2020 at 4.06 am
Thanks a lot very informative
@ Reply
Yeo December 10, 2019 at 5:44 pm
There seems to be a typo.
“An accrual for tax is needed in 2XX3, which will be reversed in 2XX4 when
the tax is levied"
For 2XX3, the ‘Net effect on P/L’ should be -80 instead of 80. @ Benly
Abderrahim Hachour November 24, 2019 at 10:33am
Thank you for your efforts | really appreciate it
Since | discovered your site it became my reference in terms of IFRS IAS
standards, and Im learning
Thanks again
@ Reply.
Dorota Szezesniak November 22, 2019 at 6:25 pm
Excellent explanation - simplicity works best
@ Reply
Amina October 12019 at 313,pm
Wow Silvia,| don't have words to thank you. you made this complex issue
very simple! Thanks
@ Reply
Neelam Agarwal. July 16. 2019 at 6:12pm
Hi Silvia,
Thank you so much for all these videos and articles. They are really useful.
1am currently looking for some examples of accounting of deferred tax on
share based payments, Could you please help me with that? | am basically
looking for some understanding of situations when DTA is taken to equity
rather than to profit and loss.
Thank you again
@ Reply Muhammad Ali March 2.2019 at 4:06 pm
Dear Silvia, | am writing to discuss particular fact pattern in which the
Jurisdiction levy an income tax based on shareholding structure of the
Company. In such jurisdiction, the income tax is levied to the extent of profit
attributable to non-resident shareholder. The net profit is determined as per
applicable tax regulation. The Company is required to pay such tax
irrespective when such profit is distributed to the shareholder. As per the
arrangement b/w the Company and non-resident shareholder, the
‘Company will be reimbursed by the shareholder, the amount of tax it has
paid to taxation authority. Since the tax base and accounting base of the
financial statement item differ; whether the Company accounts for DTA /
DTLon differences and also the income tax in its books or such tax be
considered applicable to shareholder and Company is not required to
recognize any tax charge in its book rather create receivable from non-
resident shareholder as and when the related tax is paid to taxation
authorities on behalf of shareholder It is also pertinent to mention that
Company is also required to withhold tax on distribution of profit to non
resident shareholder which is not adjustable in the hand of said shareholder.
Thanks for your valuable comments.
@ Reply
Muhammad Ali January 20.2019 at 1:05pm
Hi Silvia: | am writing to discuss particular fact pattern in which the
Jurisdiction levy an income tax based on shareholding structure of the
Company. In such jurisdiction, the income tax is levied to the extent of profit
attributable to non-resident shareholder. The net profit is determined as per
applicable tax regulation. The Company is required to pay such tax
irrespective when such profit is distributed to the shareholder. As per the
arrangement b/w the Company and non-resident shareholder, the
Company will be reimbursed by the shareholder, the amount of tax it has
paid to taxation authority, Since the tax base and accounting base of the financial statement item differ; whether the Company accounts for DTA /
DTL on differences and also the income tax in its books or such tax be
considered applicable to shareholder and Company is not required to
recognize any tax charge in its book rather create receivable from non-
resident shareholder as and when the related tax is paid to taxation
authorities on behalf of shareholder It is also pertinent to mention that
Company is also required to withhold tax on distribution of profit to non
resident shareholder which is not adjustable in the hand of said shareholder.
Thanks for your valuable comments.
2 Reply
FM January 20, 2019 at 8:54 am
Hi Silvia
Is the DT treatment on finance lease assets same as PPE ?.
@ Reply
Ahmed M. Fadul July 18, 2018 at 215 pm
Just brilliant!!!
@ Reply
ahmed ganiyu May 28, 2018 at 739,pm
Hi Silvia, thanks for the article,very useful for students, Can i ask you when
do you treat DTA as short term
@ Reply
sil
ia May 29, 2016 at 6:56am
Hi Ahmed, DTA is always non-current, it's the requirement of the
standard, ? Beply,
Adrian April 29, 2018 at 226 pm
That's an excellent article for any IFRS Reader. It may help you to get the
vision of IAS12.
Congrats on your project!
Adrian
@ Reply.
Cheryl Chua October 27,2017 at 6:30 am
Hil Thank you for this article. Could you do an explanation on deferred tax
using balance sheet method?
Im quite confused on the difference between Income statement method
(which is not allowed) VS balance sheet method,
Thanks and appreciate your help!
@ Reply
Silvia M. October 27 2017 at 823. 0m
Hi Cheryl, this article does not speak about the income
statement method - it only explains the effects of deferred tax
on profit or loss, | teach the balance sheet method in the IFRS
Kit S.
? Reply
Usman June 10, 2017 at 106 am
Can we add deferred tax liabilty balance in to deferred tax calculations???
@ Reply
PRASAD April 29, 2017 at 12:39am
Hi Silvia IAS 12 requires a DTL to be established on revaluation reserve.let’s say the
asset is depreciable and has different tax rates as per books / tax
IAS 16 perhaps permits an entity:
~ to allow a proportionate transfer of RR to RE over the life of the asset or
— a complete transfer from RR to RE only at the end of the useful life /
disposal
Will DTL be reversed if RR is transferred only on asset disposal, especially
since the income statement will have the impact of excess depreciation?
Secondly, would the reversal of DTL be effected through Statement of
income or OCI?
@ Reply
desmond April26.2017 at 226 pm
This is a very good explanation of deferred tax. The simple method used is
very useful helps a lot in understanding the theory and the basis
@ Reply
Syed March 24, 2017 at 802 pm
Nice explanation. | require one clarification for IFRS accounts. Company has
recorded a gain on revaluation from its investment property, however over
all the company is in loss, This is the first year of the company accounts, So
now the company has to book a deferred tax expense under the heading of
tax expense for current year? Based on my knowledge it is not like deferred
tax asset where you check future taxable profits availability, so losses need
to go up by the DTL amount for C/yr.
@ Reply Ada March 16.2017 at 1211 pm
ifin prior period, we had both a deferred tax asset and a deferred tax liability
in the books and in current year, the movement during the year reveals a tax
credit. Where is the tax credit applied?
a) to the existing deferred tax asset to increase it
or
b) to the existing deferred tax liability to reduce it?
@ Reply
Silvia M. March 17, 2017 at 9:44. am
Dear Ada
In general, you need to recognize the deferred tax asset for
unused tax credits (if probable they will be used). But still, why
do you have both DTA and DTL? Why did you not offset? Is it in
the consolidated financial statements, or what's the reason? Ifits
in the consolidated financial statements, then you need to.
assess the tax credit with the deferred tax of the same entity (ie.
you can't offset DTA of a parent with DTL of a subsidiary in most
cases). S.
7 Reply
Snehasish Barua November 12, 2016 at 5:25 am
HI Silvia
We calculate deferred tax at the time revaluation of PPE. Say it was a
depreciable asset (building). Here the liability is created by debiting the
revaluation surplus. As per para 41 of IAS 16 an entity may transfer the
depreciation net of taxes to the retained earnings from the revaluation
reserve, Should we transfer the related deferred tax liability to the P&L (SC).
or retained earnings?
@ Beply Silvia M. November 13, 2016 at 5:57pm
Yes, you should & Good point!
@ Reply
Prashanth Kamath July 29, 2016 at 202 pm
Hi Silvia,
if a company was adopting p&L approach all thru last 10 years and now
when it adopts balance sheet approach will that lead to huge difference ? if
yes why ? please give few examples.
Will Land value is an item of difference causing Def tax? permanent diff
cannot lead to Def tax.
@ Reply
Wagar March 12, 2016 at 623 am
Hi Silvia,
You are doing great job.
Could you share an article that explain deferred tax through balance sheet
approach
Thanks
@ Reply
Shambhu December 8.2015 at 1:29 pm
Can you please explain on approaches for computation of Deferred Tax ie.
Profit & Loss / Balance Sheet and please also explain why.
@ Reply Silvia M, December 9, 2015 at 9:10 am
Hmhm, | will do it, but not in the comment - this question
deserves more attention &
? Beply,
Ahamed October 16, 2015 at 7:11am
Hi Silvia,
Thank you very much,
Ihave a question regarding the deferred tax impact of provisioning for trade
receivables
In most jurisdictions provisions for doubtful debts are not recognized by tax
regulators but write-offs are allowed. IN a given year where there are no
write-offs, the tax balance and the carrying value will be different. Should an
entity be recognizing deferred tax assets or liabilities based on this
difference?
Thanking you in advance.
Regards,
Ahamed
@
Silvia M. October 16, 2015 at 8:49 am
Dear Ahamed,
it seems we have a temporary difference here if you assume
that one day in the future, you will write the receivable off. In this
case, as write-offs are deductible, deferred tax arises. S,
@ Reply Amit May 13,2015 at 8:00 am
Dear Silvia, | work in financial services company engaged in trading
business, There are significant amount of unrealised gain/loss recognised
as at reporting date on derivatives and held for trading investments. As
intention is to make short term gains, there is uncertainty relating to
realisation of this gain/loss in next year, Stillis there need to recognise
deferred tax asset/iability on unrealised loss/gain arising on derivatives
and held for trading assets.
@ Reply
Silvia M. May 14, 2015 at 8:56. am
Hi Amit,
what do you mean by unrealized gains/losses? Does it mean
that you revalue your assets to their fair value at the reporting
date and you put these FV gains/losses in profit or loss?
In this case, the carrying amount of your assets or derivatives is
certainly different from their tax base (as | assume that in your
country, you dontt tax FV gains/losses, just when
assets/derivatives are sold), So yes, you need to recognise
deferred taxation on all temporary differences existing at the
reporting date (although they will reverse short time after the
year-end)
s.
@ Reply
Toyin February 16, 2016 at 4:03
HiSilvia
Deferred Tax is expected to reverse after the asset
is written down.
Using DTL for example, the expense is initially
booked through P or L in the respective years. In the year of reversal, when debiting the liability,
what ledger will be credited?
Do we restate or account for it in the current year?
BR
@ Reply
xueshan April 9, 2015 at 627 am
Hi,
im quite blur about the "deferred tax does not affect the tax payable part”
Ifi have DTA b/f, then i have profit during the year, i need to reverse the DTA
out, then this will cause my tax payable to decrease isnt?
Please assist on this, Thank you very much!
Regards,
Xue Shan
@ Reply
SilviaM. Aprile 2016 at754.am
Hi
No. it will not cause your tax payable to decrease, Reversal of
DTAis charged in deferred tax expense and this expense does
NOT affect your current income tax payable (when you
calculate your current income tax payable, you take profit
before taxes including deferred taxes). S.
@ Reply
xueshan April 9. 2015 at 7:68 am
Thanks S! You are so helpfull! <3
@ Bey Danford Masiwa November 18. 2014 at 1:02 pm
great article, thank you
@ Reply
Everton McNaught November 17,2014 at 8:35pm
This has always been a challenging topic.
Thanks for making it easier to understand and apply.
@ Reply
Richmond Jallah November 11, 2014 at 6:01pm
very knowledgeable piece. Thanks and keep it up.
@ Reply
Muhammad Faizan November 10, 2014 at 6:06 am
very useful and conceptual
@ Reply
Pascal Bhamu November 8, 2014 at 4:62pm
thanks a million its been a challenge and its good to know,
@ Reply
thank you very much. this has been a big challenge to me. i now know
@ Reply Hugo November 7 2014 at 12:36 pm
Good and simple explanation on the subject,
@ Reply
MUNIRU GANIYU November 7, 2014 at 1218 pm
Well done and God bless for a wonderful job,
@ Reply
Lemley Joseph November 7, 2014 at 10:14 am
Wow! That was a brilliant outline, simple and easier to understand
Thank you Robin.
To you Madam SilviaWe appreciate your efforts to help us comprehend
IFRSs and allowing Professor Robin Joyce to further enlighten us on the
IFRSs.
Were all proud of you, Keep up excellent job you are doing
@ Reply
cissy mutere November 7.2014 at 9:57am
thank for articles.they have been helpfulhowever i request for the group
consolidations,becourse i did not receive all notes
@ Reply
Essop November 7 2014 at 9:54 am
This is great! needed some additional material for IAS 12 as | will be
attempting ACCA P2 Corporate Reporting in December. Many thanks
@ Reply
JGS November 7.2014 at 5:32am
This is very helpful. Thanks to the both of you!
@ Reply
primrose November 6, 2014 at 6:31pm
thank you very much the article is of great importance and helpful
@ Reply
Ahmad Abubakar November 6, 2014 at 4:55 pm.
Thanks Silvia for the job well-done! Never been so equipped and cleared on
Tax accrual than today! Thumbs up to the Prof and best regards!
@ Reply
Alphonce DMassaga November 6.2014 at 3:59 pm
Its really encouraging me that in future | will be good accountant, i am still
gaining
Thank you Silvia and Robin
@ Reply Elena Anton November 6, 2014 at 3.46 pm
Thanks Silvia for the lesson!
@ Reply
Tebuho Nare November 6, 2014 at 10.42 am
Please help me with deffered tax
@ Reply
Hemal. November 6, 2014 at 8:53 am
Thanks Silvia for the lesson
@ Reply
Silvia M. November 6, 2014 at 12.
Thanks to Robin this time
@ Reply
Vincent Augustino FCPA 1140 November 6, 2014 at 7:30 am
Good presentation
@ Reply
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