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Hello Dear Tutor,
Would you please explain how we should treat with the PERMANENT deferred tax.
For example suppose the value of PPE according to IFRS is 200M but according to its tax base is 150M and suppose all the difference is because of a PERMANENT difference.Now what should we do for this difference? Would you please tell me the accounting entries?
Thank you
We only record deferred tax for temporary timing differences – those that will reverse over time
Any permanent difference is dealt with in the year that that difference arises
Thus, where an entity has to pay a $5,000 non-deductible fine, the accounting expense is $5,000 but the taxman won’t allow that and the amount has to be added back to profit before tax to find the taxable profits
The $5,000 will never be allowed as a deduction by the taxman so that represents a permanent timing difference
OK?
Thank you for your answer. Yes I think!!
Just to make sure I am well understood, Suppose in the example I told, the 50M difference is because of a 20M temporary difference and a 30 permanent difference. (tax rate 10%)
So in that case the entries would be :
ONLY for temporary difference : Dr Tax expense 2M & Cr Deferred Tax Liability 2M.
And we should do NOTHING (I mean no entries is needed) for the permanent difference?
Yes?
Thank you
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