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hello sir,
what are taxable temporary difference and deductible temporary differences
thanks in anticipationThere are examples in the course notes. If you are asking “What is a timing difference?” then the answer is …..
…..a timing difference arises because accounting “rules” differ from the “rules” applied by the tax authorities. For example, royalty income under accounting principles should be shown as pre-tax income in the year in which it is earned but the tax authorities will (typically) follow the principle of taxing royalty income in the year in which it is received.
It’s the difference between accruals based accounting and cash based accounting
OK?
Hello Sir ,
I am ok with temporary difference can you please explain following lines taken from bpp revision kit:
Taxable temporary differences will result in taxable amounts in determining taxable profit (loss) of future
periods when the carrying amount of the asset or liability is recovered or settled.
Deductible temporary differences will result in amounts that are deductible in determining taxable profit
(tax loss) of future periods when the carrying amount of the asset is recovered or settled.
Thank youYes. Put in very simple terms, a taxable difference means the the item in question will be accounted for in TAX terms at some time in the future as opposed to being taxed this year.
A deductible temporary difference will mean that it will be allowable as a tax-deductible expense at some time in the future – it will not be treated as a tax deductible amount this year
Ok?
From the lecture at 3:51 minutes.Why is that deductible temporal differences will give rise to deffered tax asset? I get taxable differences because we have to pay a tax In future-so deffered tax liability.And why “difference will mean that it will be allowable as a tax-deductible expense at some time in the future – it will not be treated as a tax deductible amount this year” why are they going to be deductible expense whereas temporary differences we are looking at assets and liabilities with their respective values?
If the tax authorities, typically working on a cash basis, only allow expenses to be tax deductible against the profits of the year in which those expenses are paid, then any accounting expense calculated on an accruals basis will represent a deferred tax asset, convertible into an expense in the future (ie in the year in which that accrued expense is actually paid)
Does that answer your question?
Not yet.”only allow expenses to be tax deductible against the profits of the year in which those expenses are paid”-my example,the company incurred insurance OF CU1000 in 2015 financial year which ends in December 2015,and will pay next year.assume tax rate of 30%.SO does THIS mean that in 2016 we will DR Accrued expense of CU700(1000*70%)
CR Bank CU700.Because they are tax deductable in 2016,you see it suppose to be a liability because we were supposed to pay the tax of CU300 it in 2015 but due to the fact that tax man works on cash basis we had to pay and deduct tax in 2016.aND HOW SHALL I account for deffered tax asset,or we will say in 2015 DR Deferred tax asset CU300(1000*30%)
CR Deffered tax Liability CU 300 Because when we pay rent next year in 2016 we would have paid tax in CU1000? and you see that am confusing this with taxable temporal differences.
Please make your own simple example.Ignore the idea of deducting tax from the tax-deductible expense payments! That’s not how it works!
The 1,000 will be paid in full and recorded as a 1,000 payment. The concept of tax, deferred and current, liabilities and assets, comes in as a notional adjustment.
The company will accrue the 1,000 expense because it has been incurred, but it won’t record the payment until next year
At the end of the financial year, the company accountant will prepare financial statements arriving at a figure representing “profit before tax”
Now come the notional adjustments. Calculate how much deferred tax liability there is to carry forward into the next year. Balance off the deferred tax account and take the balancing figure to the current tax account. Calculate the liability for tax based on this year’s profits and record that liability. Balance off the current tax account and take that missing figure to the statement of profit or loss as this year’s tax expense
Better?
Oh yes!! much better after comparing my IFRS text book and your explanation.#smiling#
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