what is deferred tax libility and deferred tax asset and how it is calculated?
3 Replies
HITESH
(chartered accountant)
(441 Points)
Replied 18 August 2010
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
CA Manish K Dhoot
(CA, B. Com, NCFM, CPCM)
(5015 Points)
Replied 18 August 2010
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.
Harry
(service)
(31 Points)
Replied 08 September 2010
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
|
|
Yr 1 |
Yr 2 |
||
|
|
Accounting |
Taxable |
Accounting |
Taxable |
|
Revenue |
100 |
100 |
100 |
100 |
|
Temporary diff |
10 |
|
|
10 |
|
|
110 |
100 |
100 |
110 |
|
Tax rate |
20% |
|
20% |
|
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
|
|
Yr 1 |
Yr 2 |
||
|
|
Accounting |
Taxable |
Accounting |
Taxable |
|
Revenue |
100 |
100 |
100 |
100 |
|
Temporary diff |
10 |
|
|
10 |
|
|
110 |
100 |
100 |
110 |
|
Tax rate |
20% |
|
30% |
|
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
|
|
Yr 1 |
Yr 2 |
Yr 3 |
|||
|
|
Accounting |
Taxable |
Accounting |
Taxable |
Accounting |
Taxable |
|
Revenue |
100 |
100 |
100 |
100 |
100 |
100 |
|
Temporary diff |
20 |
|
|
10 |
|
10 |
|
|
120 |
100 |
100 |
110 |
100 |
110 |
|
Tax rate |
20% |
|
30% |
|
40% |
|
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
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