Hi Chris,
I'm having a doubt. Expenses such as client entertaining expenses are not recognised by the tax authorities and therefore give rise to permanent difference which has no deferred tax consequence. But provisions and development cost amortisations are taken in to account for temporary difference and a deferred tax asset or liability arises. Why? These expenses are also not recognised by the tax authorities right? I'm confused. Could you please explain me the reason?
Ask the Tutor ACCA SBR
Deferred Tax
5y ago#1The exam will always tell you the tax rule. So DO NOT use your knowledge of your local tax system.
In the UK, for example, development costs and provisions are allowed for tax when the company actually spends the money.
So development costs get tax relief before they hit the P&L and provisions get tax relief after they hit the P&L
Okay understood. And also in terms of FV adjustment of subsidiary when acquired how does deferred tax arises on net assets? I mean tax is charged on statement of profit or loss figures right? And the debit/ credit entry for the deferred tax is recorded in goodwill. Could you please explain the logic in that? Other normal deferred tax cases are understandable but this isn't.
5y ago#3A bit like a revaluation.
FV adjustment makes PPE go up and GOODWILL go down
DT adjustment makes DT LIABILITY go up and GOODWILL go up
Nothing in P&L
Sign into reply to this topic.