Deferred Tax,
By: Mahima Pahwa (IBS Gurgaon)
Differences between Accounting Income and Taxable Income
TYPES OF DEFERRED TAX
DEFERRED TAX LIABILITY
FINANCIAL STATEMENTS PRESENTATION
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GST is a vast subject. Some feel that the goods rates have increased whereas some feel its reduced & some are confused thinking that how are they benefited from the implementation of GST
As 22 final,AS 22 has become applicable to all listed companies with effect from 01/04/2001. The AS will also be applicable to all non-listed corporates with effect from 01/04/2002 and all other non-corporate entities with effect from 01/04/2003. Hence, now in financial statements two taxes will be accounted for (a) current income tax and (b) deferred income tax. AS 22 is a measurement standard meaning thereby that it involves accounting along with disclosure requirement in financial statements.
Tax Planning Concept and tax planning with specific managerial decisionsSundar B N
In this ppt most of the tax planning concepts are covered. Tax planning, Tax evasion, tax avoidance, tax planning with inter corporate dividend and Bonus share. Tax Planning with specific managerial decisions are covered.
Subscribe to Vision Academy for Video assistance
https://www.youtube.com/channel/UCjzpit_cXjdnzER_165mIiw
Single entry system of accounting is on of the easiest methods of preparing financial statements. This presentation discuss the various aspects of Single Entry System of Accounting
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What is the purpose of deferred tax assets and liabilities- What do th.docxearleanp
What is the purpose of deferred tax assets and liabilities? What do they represent and how do they affect tax expense. Do you think recording deferred tax assets/liabilities helps the readers of the financial statements better understand a company’s tax position? Why or why not?
Solution
Deferred Tax Assets and Deferred Tax Liabilities arise due to the timing/Temporary differences.Concept of Deferred Tax Asset and Liabilities is prescirbed by IAS Income TAxes.
Temporary differences are differences between the carrying amount of an asset or liability in the statement of financial position and its tax base.purpose of deferred tax assets and liabilities is better accounting treatment of taxes and better presentation of Financial Statements.
A deferred tax asset shall be recognized for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilized.In simple words if we have paid tax more than the tax payable as per accounting income then deffered tax asset will be created.
Deferred tax liabilities generally arise where tax relief is provided in advance of an accounting expense/unpaid liabilities, or income is accrued but not taxed until received.In simple words if we have paid tax less than the tax payable as per accounting income then deffered tax liability will be created.
Yes, recording deferred tax assets/liabilities helps the readers of the financial statements better understand a company’s tax position. Since the investors would be able to know the exact position of the company on that date. If company does not show them then readers wont be able to know the more/less requirement of tax in future years due to current/ previous years.
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2. WHY IT ARISES
Differences between
Accounting Income and
Taxable Income
Difference in
allowance of expenses
in Income Tax Act.
Provision for
Bad/doubtful debts.
Charging Depreciation.
Accrual Basis vs
Receipt Basis.
4. DEFERRED TAX LIABILITY
Deferred tax liability arises when
there is a difference between what a
company can deduct as tax and the
tax that is there for accounting
purposes. A deferred tax liability
signifies that a company may in
future pay more income tax
because of a transaction in the
present.
Companies
generally tend
to push current
profits also into
future so as to
reduce the tax
burden. This
allows more
money for
investment
purposes rather
than paying it
off as tax to the
government.
3
Revenues
taxed later
when received :
Revenue from
instalment sales
may be taxed
when
instalment are
received after
the revenue is
recognized in
accounting.
2
Prepaid
Expenses : It
may be
deductible for
tax when paid
but recognized
in accounting
later in relevant
period.
1
REASONS
5. DEFERRED TAX ASSET
Deferred tax can arise as a result of timing difference or
temporary differences in accounting.
Deferred tax assets arise when the tax amount has been
paid or has been carried forward but has still not been
recognized in the income statement.
Entity Profit
Status
Current Future Effect
Book profit is less
than the Taxable
profit
Pay more tax now Pay less tax in
future
Creates Deferred
Tax Asset (DTA)
6. FINANCIAL STATEMENTS
PRESENTATION■ The book entries of
deferred tax is very
simple. We have to
create Deferred Tax
liability A/c or Deferred
Tax Asset A/c by
debiting or crediting
Profit & Loss A/c
respectively.
■ The deferred tax is
created at normal tax
rate.
DTL
Profit & Loss A/c Dr
To Deferred Tax Liability A/c
DTA
Deferred Tax Asset A/c Dr
To Profit & Loss A/c
7. If book profit is greater than taxable profit, create
deferred tax liability.
If book profit is less than taxable profit, create
deferred tax asset.
If there is loss in the books of accounts but profit as
per income tax and the difference (e.g. disallowance of
exp.) subject to adjustments in future,create deferred
tax asset.
If there is profit in the books of accounts but loss as
per income tax and carry forward of loss is allowed,
create deferred tax liability.
8. EXAMPLE - DTL
Revenue Rs. 50,00,000
Expenses as
per books
Rs. 10,00,000
Taxable income Rs. 40,00,000
Tax @ 30% Rs. 12,00,000
INCOME AS PER BOOKS OF
ACCOUNTS OF A COMPANY
INCOME AS PER INCOME
TAX AUTHORITIES
Revenue Rs. 50,00,000
Expenses
allowable as per
IT authorities
Rs. 12,00,000
Taxable income Rs. 38,00,000
Tax @ 30% Rs. 11,40,000
LESS TAX PAYABLE – Rs. 60,000 as per Income Tax Authorities
9. EXAMPLE - DTA
Revenue Rs. 50,00,000
Expenses as
per books
Rs. 10,00,000
Taxable income Rs. 40,00,000
Tax @ 30% Rs. 12,00,000
INCOME AS PER BOOKS OF
ACCOUNTS OF A COMPANY INCOME AS PER INCOME
TAX AUTHORITIES
Revenue Rs. 50,00,000
Expenses
allowable as per
IT authorities
Rs. 8,00,000
Taxable income Rs. 42,00,000
Tax @ 30% Rs. 12,60,000
EXCESS TAX PAYABLE – Rs. 60,000 as per Income Tax Authorities