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lets say , in the end of 2016 , Company X profit statement state a profit $90,000 , however for the tax purpose the profit is $100,000 . This is because of an expenses is not qualify for deduction for tax purpose in the current year .( This expenses will be given deduction in the next year )
Tax Rate – current year ( 20% )
– next year (25%)Actual Tax Payable $20,000
Deferred Tax Asset ( $ 2,000)
Tax Charged to the P&L $18,000In this question the tax rate is not constant , it increased by 5% in next year , so is that required to revalue the deferred tax asset ? If the ans is yes , how to do the revaluation ?
The difference between the tax base and the carrying value is computed at the end of each financial year
The current rate of taxation is then applied to that difference
Where there is a change in the rate of tax, that change is automatically accounted for because the rate used is that rate that applies at the date of the financial statements
It is, in principle, the same as any movement in any provision. Calculate the figure that you wish to carry forward as a provision and … carry it forward. Then balance off the provision account and take the balancing figure to the statement of profit or loss.
In the case of a movement in the provision for deferred taxation, that balancing figure is taken to the statement of profit or loss by way of being double entered into the current tax account and from there the revised balancing figure for current tax becomes the tax charge for the year
OK?
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