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Hello Sir,
I was not able to answer this question correctly. Even after reading the Answer I couldnt follow.Can you please explain detailed Why the correct answers are options A and C?Which TWO of the following would result in a credit to the deferred tax account?
A-Interest receivable, which will be taxed when the interest is received
B-A loan, the repayment of which will have no tax consequences
C-Interest payable, which will be allowable for tax when paid
D-Prepaid expenses, which have been deducted to calculate the taxable profits of the previous yearHi,
A credit to the deferred tax account is effectively a liability on the deferred tax account. This arises from a taxable temporary difference, which is when the CV is greater than the tax base.
So, for A the CV is the value of the receivable on the SFP and the tax base would be nil as the tax authorities would not recognise anything on their SFP until the cash is received. CV is greater than the tax base = liability = credit to the deferred tax account.
I’m not convinced that C is a credit in the deferred tax account though. This situation would give rise to a deferred tax asset as the CV (value of the payable, treated as a negative amount) is less than the tax base of nil.
Thanks
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