Deferred Tax Confusion

Hi Furqan,
Answer specific to question is:

i) If IFRS/Accounting rules says that recognize income now but the tax rules say that recognize income next year, the consequence would be that company will be taxed next year for current year income.
As per the matching concept, expenses are recognized in the same accounting period as the related revenues are recognized. Tax is an expense, thus tax expense for current period should be recognized in current accounting period by debiting current expense A/c and crediting Deferred tax A/c (Liability). And in the next year tax liability will be increased by debiting deferred tax A/c(Liability) and crediting tax liability(Current Liability) A/c. (Tax is usually paid in next year.)

ii) If tax rules says that recognize income now and accounting rules says recognize it next year, the consequence would be company will be taxed in current period for income of future period.

As per matching rule, current year tax is provided using deferred tax account, by debiting Deferred tax A/c(Asset) and crediting Tax liability A/c(Current Liability). This deferred tax (Dr. balance, called Asset) will be use to provide tax expense in next period, by debiting Tax expense A/c (Expense) and crediting Deferred tax A/c (Asset).

I hope this answer will help, sorry for any error, I am student like you.

Addition Readings:
Deffered Tax Article
Webpage: https://www.accaglobal.com/in/en/student/exam-support-resources/fundamentals-exams-study-resources/f7/technical-articles/deferred-tax.html
PDF:www.accaglobal.com/content/dam/acca/global/PDF…/sa-aug09-bake-clendon.pdf

You’re welcome.