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Dear sir, I would like to ask about a study case in which the accounting depreciation period is longer than the tax allowed period (say, 3 yrs & 1 yr). Normally, it would cause deferred tax liability. But if either of tax and accounting depreciation cause tax losses and these tax losses are permitted to carry forward, then deferred tax asset may arise (the study case assumes that conditions of recognizing d.t.asset are satisfied).
So can it be the case when both liability and asset arise because of one temporary difference such as depreciation above? Or we must net off? I am quite confuse about d.f.tax 🙂
Hi,
Usually the depreciation is charged at lower rate than the tax depreciation, which means the carrying value is greater than the tax base and therefore a deferred tax liability.
In the case where the accounting depreciation is greater than the tax depreciation then the carrying value will be less than the tax base and a deferred tax asset will arise. However this situation rarely arises as governments encourage investment by allowing generous tax depreciation.
Thanks
Dear sir,
Thank for your reply. In this case the depreciation is lower than tax depreciation, I knew that it would be d.t.liability. However, the question adds some complications when both depreciation and tax deprecation causes losses which are carried forward by tax law (deprecation is still less than tax depreciation of course). Then may we have a d.t.asset here?
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