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Can you confirm that what i am saying makes sense and is correct please?
With regards to deferred tax i always look at the question and see what the company has in their accounts and what the tax base is. (tax rate 30%)
So if i have an asset in the accounts for $30million and the tax base is $40 million, i should have got relief for $40 million but only got relief for $30million therefore a deferred tax asset of $10 million x 30% = 3mill is required.
On the other side, I have a net liability of $20 million and the tax base is $30million, now i have paid tax on the $20 million therefore $10million x 30% = 3million deferred tax liability.
Numbers are completely random i just want to check my logic!
“So if i have an asset in the accounts for $30million and the tax base is $40 million, i should have got relief for $40 million but only got relief for $30million therefore a deferred tax asset of $10 million x 30% = 3mill is required.”
That seems ok. Now extend it to having an asset of $30m and a tax base of $25m. You are only going to get tax relief on $25m so there is a deferred tax liability of $5m @ 30% = $1.5m
OK?
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