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Current liabilities include interest revenue received in advance, with a carrying value of RM10,000. The related interest revenue was taxed on a cash basis.
My answer is:
Carrying Value: RM10,000
Tax Base: RM10,000
Temporary difference (TD): RM0Answer given is:
Carrying Value: RM10,000
Tax Base: RM0
Temporary difference: RM10,000Why there is still TD of RM10,000? Since the revenue receive in advance and already taxed when received the cash.
Can someone advise me on this? Thanks a lot.
Hi,
As the cash has been received then it will have been taxed and the tax authorities would not recognise anything on their SFP, hence a tax base of zero.
If you think of it from a SPL perspective then we would have a tax charge showing as the cash has been received and the tax paid/expensed but there would be no income to match up against it. We therefore need to remove the tax expense (credit it) and set up a deferred tax asset. Once the revenue is recognised then the tax expense will be recognised too as the deferred tax asset will be released.
Thanks
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