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Forums › ACCA Forums › ACCA SBR Strategic Business Reporting Forums › Deffered Tax
Hi Sir,
If an income is tax exempt, how should the deffered tax be accounted for? Deffered tax liability or what?
Deferred tax is a way of accounting for temporary differences between how an element of financial statement is recognised in financial statements and how it is treated for tax purposes.For instance, the difference between depreciation charged as expense and capital allowances granted by tax authorities on am asset can often lead to a need to recognise an expense in profit and loss and related credit to deferred tax account.This would happen if capital allowance granted on asset were more generous than depreciation recognised in financial statement related to the asset.In the circumstance you describe of exempt income there would be no temporary difference and so no deferred tax would have to be recognised.In other words, nothing would have voice done to financial statements.