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Which of the following would result in a credit to the deferred tax account?
(1) Interest receivable, which will be taxed when the interest is received
(2) A loan, the repayment of which will have no tax consequences
(3) Interest payable, which will be allowable for tax when paid
(4) Prepaid expenses, which have been deducted to calculate the taxable profits of the previous year
A 1 and 2
B 3 and 4
C 1 and 4
D 2 and 3
Sir correct ans is C but please can you explain why c is correct and why others are wrong?(2) has no tax consequences so would have no impact on the deferred tax account.
(3) there is no temporary differenceSorry, my bad. There would be a temporary difference as the interest payable would be accrued and therefore a temporary difference to when the tax is paid. The resulting entry would be a debit to the deferred tax account as the carrying value of the liability is less than the tax base of nil.
Thanks
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