IAS 12- taxes- deferred taxes

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
Hi,
I wondered if anyone could explain what deferred tax is for me?
I know that the tax figure most questions give you is the corp tax charge for the year and you put it as an exp on the P&L and as accrual/liability on the B/S but i dont understand what deferred tax is or how you deal with it.
Please help im scared they will ask about it on the theory q tomorrow.

Thanks

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:IAS 12- taxes- deferred taxes

    Hi,

    I asked the same Q a couple of months back, see http://www.aat.org.uk/forums/posts/list/10689.page

    It seems unlikely this will be asked but best to cover all bases!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:IAS 12- taxes- deferred taxes

    Hi Matt,
    Thanks, It still doesnt mean anything to me but i think ill try and memorise the description on the tread you showed me in case they ask a q on it and hope and pray that they dont ask you to do any calcs on it! just one of those things that wont click.
    Laura
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:IAS 12- taxes- deferred taxes

    I'm in the same situation, I have an idea of what it is but I can't quite write it down in a way I understand it. I know the accounting entries for it and I know how it's calculated but that sentence or two to explain is quite elusive. I'm sure if it comes up we'll write something to cover it! :lol:

    It's the least of my worries at the moment anyway, I'm still struggling on part 1 of the paper, I haven't even looked at part 2 yet. I'm just hoping my experience at work is going to pull me through!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:IAS 12- taxes- deferred taxes

    Deferred tax is a temporary difference between the tax implications and the accounting implications of a transaction.

    Eg, capital gains allowances on non current assets
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:IAS 12- taxes- deferred taxes

    Deferred tax arises where you have a temporary difference between what is your accounting profit and your taxable profit.

    Depreciation is not allowable for tax - you get capital allowances instead. Say for example you depreciate a Non-Current Asset over 4 years. The capital allowances you are allowed to claim back might be over 10 years. At the end of the 10 years you will have paid the same, however, until you get to the point there is a temporary difference between the tax you calculated on your financial statements and your tax return sum.

    Deferring tax simply means that you acknowledge that at some point this money is going to have to be paid in tax and so you are providing for it now. Essentially an example of the accruals concept.

    Hope this helps.

    Susan
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:IAS 12- taxes- deferred taxes

    thanks susan i think that does help actually.
    Still dont want it to come up : )

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