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Hie Mike,
Carrying value(asset/liability)- tax base=temporary difference.
if the difference is a negative it results in an asset.I do understand where this is coming from.however the double entry makes me wonder.For example:Suppose that at the reporting date the carrying value of a non-current asset is $2,800 while its tax base is $3,500, as shown in Table 6 above.
In this scenario, the carrying value of the asset has been written down to below the tax base. This might be because an impairment loss has been recorded on the asset which is not allowable for tax purposes until the asset is sold. The entity will therefore receive tax relief on the impairment loss in the future when the asset is sold.
The deferred tax asset at the reporting date will be 25% x $700 = $175.(from ACCA tech article).
Dr asset and Cr profit or loss .What I know is is this was taxable temporary difference we simply Dr profit or loss for any increase in that PERIOD and Cr Deferred tax liability to increase the liability or closing balance for that period.It is the asset which is a bit confusing
Hi,
Try not to think about things as positive and negative when thinking about the temporary difference. If the CV>TB then it will give rise to a deferred tax liability and if CV<TB then it will give rise to a deferred tax asset.
In your example the CV<TB and so we will have a deferred tax asset, the reasoning being is that we haven’t yet claimed as much tax depreciation as we have accounting depreciation and so will therefore be able to claim more tax depreciation in future. If we are claiming more tax depreciation in the future then we will be saving tax in the future and hence recognise the deferred tax asset.
Thanks
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