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Hello Mike!
Could you explain how we would determine whether the taxable temporary difference is an asset or liability.
Let’s say we the CV of an asset of $15,000 and a tax base of $ 10,000. The tax rate is 20%. Therefore the temporary difference of $5,000 and thus a future tax consequence of $1,000
1. Is this $1,000 an asset or liability? What’s the logic behind?
If we are only going to be able to claim $10,000 tax base against our future tax liabilities but we are going to write $15,000 depreciation against our accounting profits, we add back the depreciation charge each year and replace it with capital allowances
Now we have only $10,000 capital allowances but $15,000 added back depreciation – what do you think? Good news or bad news?
Looks like bad news to me! So that would be a deferred tax liability
OK?
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