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So far, this is the worst chapter I've seen. The text is poorly written. Seems to me that the authors just lift the text from the technical specification wholesale.
Deferred tax Assets - Is like the company overpaying income tax which it expects a future refund (or a reduction in tax) provided there is future profit to remain taxable.
Deferred tax liability - Is like the company underpaying the income tax which it expects to pay back in later period provided there is future profit to remain taxable.
In the Income Statement: Income tax expense (based on accounting profit) = net increase in deferred tax liablity + tax payable (which is the amount that is going to be paid in cash to the authority)
Tax Base of an Asset = The amount that will be deductible for tax purposes in future periods as the economic benefits become realized. "Deductible" means able to reduce tax payable.
==>I still cannot mechanically understand how to determine the Tax Base of an Asset :(
Tax Base of a Liability = Carrying amount - any amount that will be tax deductible in future.
If the liability is a prepaid revenue, tax base of liability = carrying amount - the revenue that will not be taxable in future.
Friday, January 23, 2009
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2 comments:
hi! just happened to pass by while looking for help on ch 37 too! I'm okay with tax base of an asset, i just dont understand tax base of liability.
btw,it should be:
Income Tax expense = Income tax payable + net increase in deferred tax asset - net increase in deferred tax liability
And i agree that this chapter is not very well written !
Think you meant this equation:
Income Tax expense = Income tax payable + net increase in liability tax asset - net increase in deferred tax asset
Have you finish revising all the topics already?
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