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Hi,
Is there a video lecture available on deferred tax (suitable for P2) here please? I had a look but couldn’t find one. I find the BPP text book explanations quite baffling (both for this exam and F7).
Thanks.
Hi Neil
No, there isn’t one for deferred tax – it appears so rarely in the exam that it really isn’t worth spending a lot of time on
Just try again to get your head around the BPP explanation!
Hi Mike.
Thanks for getting back. I’ll have another go! I’ll probably come back with a question, but I’m not quite at the stage of being able to formulate a coherent question yet!
i can’t get my head around it either from bpp text…
can anyone explain it to me? please???There’s a difference between the depreciation calculated by a company to write off an asset and the “depreciation” allowed by the taxman for a company to write off an asset.
Generally the taxman allows 25% reducing balance writing down allowance whereas a company can choose whatever rate it wishes.
This causes there to be temporary timing differences because the taxman has allowed 25% after one year (so a $100 asset has a tax written down value of $75) but the company is carrying the asset at $90 (applying 10% straight line depreciation)
Eventually, the 10% accumulated depreciation will catch up with the accumulated tax deductions and when that has happened, from that point on, the company will be deducting more depreciation each year than the taxman is allowing.
In the years leading up to that point there is a deferred tax liability because the taxman has given us more allowances earlier so there will be less allowances for us later.
Is that any better?
i left out this topic and i havenow come back to it.
thanks for your explanation.
i understand the basic principle. i just don’t understand how bpp have applied it.
i quote from the standard:”Tax bases
The tax base of an item is crucial in determining the amount of any temporary difference, and effectively represents the amount at which the asset or liability would be recorded in a tax-based balance sheet. IAS 12 provides the following guidance on determining tax bases:
Assets. The tax base of an asset is the amount that will be deductible against taxable economic benefits from recovering the carrying amount of the asset. Where recovery of an asset will have no tax consequences, the tax base is equal to the carrying amount. [IAS 12.7]
Revenue received in advance. The tax base of the recognised liability is its carrying amount, less revenue that will not be taxable in future periods [IAS 12.8]
Other liabilities. The tax base of a liability is its carrying amount, less any amount that will be deductible for tax purposes in respect of that liability in future periods [IAS 12.8]
Unrecognised items. If items have a tax base but are not recognised in the statement of financial position, the carrying amount is nil [IAS 12.9]”must i commit all this to memory, or is there a logical way of understanding all these different situations?
thanks a lot! it’s very kind of you to do this…
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