Deferred Tax Assets (Deferred Tax Liabilities)
International Accounting Standard 12 defines deferred tax assets as “the amounts of income taxes recoverable in future periods in respect of:
(a) Deductible temporary differences;
(b) The carry forward of unused tax losses; and
(c) The carry forward of unused tax credits.”
Deferred tax liabilities are defined by this Standard as “the amounts of income taxes payable in future periods in respect of taxable temporary differences”.
The temporary differences are the differences between the carrying amount of an asset and liability and its tax base. Tax base is the value of an asset or liability for the tax purposes. The tax base of a liability is usually its carrying amount less amounts that will be deductible for tax in the future. The tax base of an asset is the amount that will be deductible for tax purposes.
The carrying values of assets and liabilities are not always the same as tax bases. It is believed that the liabilities will be settled and the assets will be recovered eventually over time and at that point of time their tax consequences will crystallize.
Two types of temporary differences can arise i.e. taxable temporary difference and deductible temporary difference.
The taxable temporary difference results in the payment of taxes when the carrying amount of a liability is settled or the carrying amount of an asset is recovered. Taxable temporary differences give rise to deferred tax liabilities. A deferred tax liability arises
- If the carrying value of an asset is greater than its tax base OR
- If the carrying value of a liability is less than its tax base.
Deductible temporary differences result in amounts being deductible when determining the taxable profit or loss in the future period when assets or liabilities are recovered or settled. Deductible temporary differences give rise to deferred tax assets. A deferred tax assets arises
- If the carrying value of an asset is less than its tax base OR
- If the carrying value of a liability is greater than its tax base.
Start free ReadyRatios
reporting tool now!
- Debt ratios
- Liquidity ratios
- Profitability ratios
- Asset management ratios
- Cash Flow Indicator Ratios
- Market value ratios
- Financial analysis
- Business Terms
- Financial education
- International Financial Reporting Standards (EU)
- IFRS Interpretations (EU)
- Financial software
Most WantedIFRS Terms
- Statement of Comprehensive Income
- Finance Costs
- Capital Expenditure (CAPEX)
- Cost of Sales
- Earnings per Share (EPS)
- Deferred Tax Assets (Deferred Tax Liabilities)
- Shareholders Equity
- Share Premium
- Intercompany Eliminations
- Administrative Expenses
Have 10 minutes to relax?Play our unique
Play The Game