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Deferred tax

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Deferred tax

  • This topic has 1 reply, 2 voices, and was last updated 9 years ago by MikeLittle.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • December 6, 2015 at 7:29 am #288109
    ask248
    Member
    • Topics: 18
    • Replies: 47
    • ☆☆

    Hi,

    Can I check I’ve understood deferred tax correctly.

    Suppose you bought an asset for $400,000 which you will depreciate over 5 years. Capital allowance is 100% in the first year. Tax rate is 20%.

    So you’ll have a temporary difference in year 1 of $320,000 which will be reduced each year until it’s $0 in year 5.

    So in year 1 you credit deferred tax and debit tax liability by $64,000.
    Then each year for 4 years you debit deferred tax and credit tax liability by $16,000.
    Like this:

    Year 1 Dr DT 64,000.00
    Cr Tax 64,000.00

    Year 2 Dr Tax 16,000.00
    Cr DT 16,000.00

    Year 3 Dr Tax 16,000.00
    Cr DT 16,000.00

    Year 4 Dr Tax 16,000.00
    Cr DT 16,000.00

    Year 5 Dr Tax 16,000.00
    Cr DT 16,000.00

    Have I got this correct?

    December 6, 2015 at 9:41 am #288140
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23327
    • ☆☆☆☆☆

    Looks good to me but it’s unlikely that you’ll get a deferred tax question with just a single asset involved.

    What then happens is that we calculate the deferred tax liability / provision to carry forward and the balancing figure in the deferred tax account is then transferred to the current tax account

    Ok?

  • Author
    Posts
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