Lesson 41 - Advanced Accounting Course

Lesson 41: Advanced Deferred Tax Accounting

💡 What Is Deferred Tax?

Deferred tax arises when accounting income ≠ taxable income due to timing differences. These are temporary, meaning they reverse in future periods.

🔁 In short:

📊 Financial income ≠ 💸 Taxable income
➡️ Leads to Deferred Tax Asset (DTA) or Deferred Tax Liability (DTL)

🧾 Key Concepts

📊 Common Causes of Deferred Taxes 

🧠 Simple Example:

Company earns $100,000 in accounting income.

• Depreciation (book) = $10,000
  
  

• Depreciation (tax) = $20,000
  
  

• Tax rate = 30%
  
  

📘 Taxable Income = $100,000 – $20,000 = $80,000
💼 Accounting Tax = 30% × $100,000 = $30,000
💸 Tax Payable = 30% × $80,000 = $24,000

📊 Deferred Tax Liability = $6,000

Why? Because the company saved tax now but will pay more later — a liability.

📘 Advanced Topics

🔁 1. Reversal of Deferred Taxes

• Timing differences reverse over time.
  
  

• Depreciation DTL reduces as book and tax values align.
  
  

♻️ 2. Temporary vs. Permanent Differences

🧮 3. Tax Rate Changes

If future tax rates change:

• Recalculate all existing DTLs and DTAs using the new rate
  
  

• Changes are booked to tax expense in profit/loss
  
  

🧮 4. Deferred Taxes on Consolidation

When consolidating subsidiaries:

• Align deferred tax treatments
  
  

• Eliminate intragroup profits and adjust deferred taxes accordingly
  
  

⚖️ 5. IFRS vs GAAP

📘 Journal Entries

📥 DTA Entry:

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Dr Deferred Tax Asset

   Cr Tax Expense (P&L)

📤 DTL Entry:

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Dr Tax Expense (P&L)

   Cr Deferred Tax Liability

📊 Summary Table

📘 Recap