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Hello
From the lecture on Kutchen, (June 2015) I know that if the carrying value is less than the tax base then there is a deferred tax asset. However i do not understand why since if the tax authority says our asset should be more, then that would mean that we owe them more tax and since we owe them, that would be a liability….just trying to get the understanding please.
Hi,
If the carrying value is less than the tax base then you’re correct in that we create a deferrd tax asset. So, let’s use a provision as an example.
The provision is a liability and its carrying value is calculated under IAS 37, which will have reduced this year’s profits. We will not see a reduction in the related tax charge this year as we won’t be able to claim the deduction until it is paid in the future. To address this we create a deferred tax asset this year and by doing so will reduce this year’s tax charge.
Hope that helps.
Thanks
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