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Deferred Tax

  • 29-05-2011 6:49am
    #1
    QueenV
    Registered Users, Registered Users 2 Posts: 60 ✭✭


    Can someone please explain the concept of Deferred tax Asset and Deferred Tax Liability in simple terms?


    TIA


Comments

  • #2
    SBWife
    Registered Users, Registered Users 2 Posts: 1,287 ✭✭✭SBWife


    A deferred tax asset is a future economic flow to the firm relating to tax a deferred tax liability is a future economic flow from the firm.

    Most common is probably a deferred tax liability related to fixed asset carrying values. Here an item is bought and can be written off for tax purposes at a faster rate than it is depreciated in the accounts. This reduces the current tax rate and tax paid, as the expenses in the tax accounts are greater than those in the IFRS prepared statements. The expectation is that the expense differential will reverse in the future for example when the asset has been completely written off for tax purposes but is still being depreciated in the accounts. The deferred tax liability is placed on the Statement of Financial Condition to account for this future reversal.

    HTH


  • #3
    QueenV
    Registered Users, Registered Users 2 Posts: 60 ✭✭QueenV


    SBWife wrote: »
    A deferred tax asset is a future economic flow to the firm relating to tax a deferred tax liability is a future economic flow from the firm.

    Most common is probably a deferred tax liability related to fixed asset carrying values. Here an item is bought and can be written off for tax purposes at a faster rate than it is depreciated in the accounts. This reduces the current tax rate and tax paid, as the expenses in the tax accounts are greater than those in the IFRS prepared statements. The expectation is that the expense differential will reverse in the future for example when the asset has been completely written off for tax purposes but is still being depreciated in the accounts. The deferred tax liability is placed on the Statement of Financial Condition to account for this future reversal.

    HTH


    Makes a lot of sense now!Thanks SBWife


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