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Dear sir /madam
I’m come across one question to calculate the quick ratio. The question have provide some information included deferred tax , but the answer for this question is excluded deferred tax in the calculation of quick ratio.
And another question about calculation of ROCE. The Deferred Tax amount also given in the question, but the answer is excluded the deferred tax when calculate the capital employed.
So my question is , whether this deferred tax should be excluded when calculate this two ratios.?
Hi,
Deferred tax is just an accounting entry and doesn’t reflect any amounts owed to the tax authorities, so therefore even though it could be a current liability it is not related to liquidity and is not included within the ratio.
Also, in the capital employed calculation, deferred tax is not debt and is therefore not included within the calculation for ROCE.
Thanks
Hi
As BPP – SBR revision kit (page 348) has included the amount of deferred taxes in the calculation of ROCE, please advise if there is any change.Thank you
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