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Calculation of deferred tax

15 December 2008 13,570 views No Comment
Can any one help me for calculation of deferred tax under deductable timing diference

Example: writeen down value of fixed assets as pert accounts-200
         writeen down value as per tax                      150

please privide the soluision by giving effects in the profit and loos accounts and balance sheet. The company going to introduce deferred tax in first time



Hi,

 
Here is the solution::
U need to calculate PGBP in following manner taking into consideration timing differences :
 
PBT as per P & L a/c :                                  ———–
Add : Depreciation as per books of accounts : ———–
Total disallowance :                                      ———–
Less : Dep as per Income tax                        ———-
PGBP                :                                        ———–
 
Now the DTA / DTL shall be the :
Tax rate : 33.99 % of timing Differences.
 
Fo more info, see the attachment
 
Hope it will help u out.
 
Regards
 
Vivek


Dear

There will be a timing difference and it will have differed tax liability.

Assuming the tax rate is 30%.

The Differed Tax Liability will be $15 i.e., ( 200-150)*30%

Now the entry will be:

Profit & Loss              DR .                  15                  

Differed Tax Liability    CR.                   15  



The income is 50 more under accounting income, thus it is a deferred tax
liability

50 will be shown as expense in P&L as Deferred tax & the same  amount will
be shown as libility in the B/S, which will get reversed, next year.

The difference is of 50, in

Krishnendu



Just to clarify – if the deferred tax is being computed under IAS 12, then treatment might differ from AS 22.

I presume that we are talking about timing differences in which case the deferred tax will be computed based on the difference between the account base and tax base and the resulting deferred tax asset/liability will be computed using the enacted tax rate.

In this case there will be a deferred tax liability and the journal would be

Dr Deferred tax expense (50 * tax rate)
Cr Deferred tax liability (50 * tax rate)

If this is part of first time adoption then the income entry will be taken to retained earnings in the opening balance sheet.



Sorry Krishnendu, you are incorrect. The Differed tax liability will be the tax on the difference of 50 with the enacted rate rather than the total difference.

So, if the enacted rate is 30% then DTL wl be 15 and not 50



So the difference is 50 and into(x) tax rate (effective tax rate assume 10%), then the DTL is 5.
 
Dr income statement 5
Cr DTL (Balance sheet) 5
 
(Assumed this is the first year)
 



What I consider appropriate DTL is about the provisioning of timing effects in the tax rate prevailing and enacted with reference to difference in two sets of accounts i,e, as per Companies Act and that drawn as per Income Tax Act hence the observation took by CS appears on the right side.
Regards



Yes you are right It is 50 multiplied by the tax rate.

50 is the timing difference

Thanks for correcting me

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