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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA SBR Exams › Defferred tax on development costs
sir i we are capitalizing the development costs and these development are not recognized by the tax authority then tax base is zero but in the future when the amortization start these charges will reduce the profits leading to the lower profits resulting in less tax payment so in my opinion these should be recognized as deferred tax asset
Hi,
When we start to amortise the intangible we reduce the carrying value and therefore the temporary difference too as the tax base remains at zero. This in turn reduces the deferred tax liability and in reducing the liability we take a credit to profit or loss, thus reducing the tax expense.
A reduction in tax expense does not always arise because of the creation of a deferred tax asset, it can arise from a decrease in the deferred tax liability too.
Thanks