Deferred tax on leases

P&L charge = depreciation plus finance cost
Tax relief = rent paid

Hence the temporary difference. It will always be DT asset because, in the early years of the lease the P&L charge will be greater than the rent paid. Why? Because the finance cost is high in the early years of the lease.

Calculation of deferred tax asset = Tax rate x (CA of lease liability – CA of right of use asset)

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