This will create the temporary difference as below: Balance Sheet Unearned Revenues Year Accounting base Tax base 2017 20,(10,000) 0 2019 (10,000) 0 Total 0 0 Income Statement Revenues Year Accounting base Tax base 2017 0 20,000 2018 10,10,000 0 Total 20,000 20,00 Deferred Tax Liabilityĭeferred tax liability is the tax liability that is payable in the future which results from the taxable temporary differences that exist in the current accounting period.ĭeferred tax liability is a liability that will credit when it increases. However, all $20,000 is recognized as revenues in 2017 in the tax base. received $20,000 from its clients in advance for 2 years’ internet service in 20 hence the company recognized it as unearned revenues in 2017 and as revenues equally in 20 in the accounting base. And the total in accounting base and tax base is the same. Or in the income statement, if it is recognized as income or expense in this year in the accounting base but not in the tax base, it will be recognized in the tax base in the futures year and vice versa. Temporary difference is the timing difference which if it is recognized as the asset or liability in this year, it will be reversed back in the future years in the balance sheet. Taxable temporary difference creates deferred tax liability while deductible temporary difference creates deferred tax asset. when carrying value of liability in accounting base is bigger than those in tax base.when carrying value of asset in accounting base is smaller than those in tax base, or.when carrying value of liability in accounting base is smaller than those in tax base.when carrying value of asset in accounting base is bigger than those in tax base, or.Temporary difference is the difference between the carrying value of an asset or liability in the accounting base and tax base. The company usually either has deferred tax liability or deferred tax asset as the deferred tax would be net off between deferred tax liability and deferred asset. Deferred tax is the tax effect that occurs due to the temporary differences, either taxable temporary difference or deductible temporary difference. Deferred tax could be deferred tax asset or deferred tax liability, in which it will be deductible or taxable in the future.
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