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Sir, we account for deferred tax on right to use because finance lease do not have tax WDV. Why don’t we account for deferred tax on lease liability? Lease liability reduces year-on-year and ultimately neutralize over the period of lease. lease liability doesn’t give raise to temporary difference? Please guide.
Depends on tax system – often tax relief given on rents paid rather than depreciation and finance cost
But in the exam:
(Carrying amount of liability – right of use asset) x tax rate = Deferred tax asset
Maximum 2 marks so don’t spend too long on it!
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