Accounting treatment of deferred tax-financial statement, Financial Accounting

Accounting treatment of deferred tax

The objective of accounting for deferred tax is to ensure that the profits for the period d onto fluctuate due to temporary differences. To achieve this objective, an account called deferred tax account is prepared upon which adjustments are made at the end of every financial period.

The approach is normally to compute the temporary differences. Thereafter we apply the corporation tax rate on the temporary difference to get the balance carried down in the deferred tax account. The balance carried down is compared with the balance brought down and the difference being the balancing figure in the deferred tax account represents a transfer to or from the profit and loss or income statement.

The transfer to or from the profit and loss is not debited or credited directly in the income statement but adjustments are made on the income tax expense whose net amount will now appear in the income statement.

The final figure for income tax expense that will appear in the income statement will be arrived as follows:-      

 

£

Current year estimated corporation tax

x

Add/(less) under cover provision of previous years tax

x/(x)

Add/(Less) transfer to (from) deferred tax account

x/(x)

                                             Income tax expense

   xx



In the balance sheet, deferred tax liability will be shown under NON-CURRENT LIABILTIES. Whereas a deferred tax asset will be shown under NON-CURRENT ASSETS.

Posted Date: 12/12/2012 12:42:59 AM | Location : United States







Related Discussions:- Accounting treatment of deferred tax-financial statement, Assignment Help, Ask Question on Accounting treatment of deferred tax-financial statement, Get Answer, Expert's Help, Accounting treatment of deferred tax-financial statement Discussions

Write discussion on Accounting treatment of deferred tax-financial statement
Your posts are moderated
Related Questions
Alta Velocidad Esperanza de L'Argentina, Sociedad Anónima (AVE), a high-speed railway operator domiciled in Rio Norte, Argentina, is a Foreign Private Issuer as defined by the U.S.

Emily Jackson, RSC Designs management accountant, is in charge of preparing the master budget for 2013.  She has gathered the following information: 1. Annual profit for the 201

Illustration for preparing final accounts K Ltd established a branch in Arusha Tanzania on 1.1.X2, when Kshs 1 = TShs 15. PPE costing Kshs 800,000 were purchased on that day. I

a) A Treasury bond that matures in 10 years has a yield of 6%. A 10-year corporate bond has a yield of 8%. Suppose that the liquidity premium on the corporate bond is 0.4%. What is

PROVABLE DEBTS All debts and liabilities present or future, certain or contingent, are provable in bankruptcy, except: 1) Claims for unliquidated damages in tort; 2) Debts

ACQUISITION OF A SUBSIDIARY COMPANY DURING THE YEAR When the holding company acquires a subsidiary company portray during the financial period, and then the approach to preparing


Illustration of Bankruptcy Njuguna Mwandawiro, carrying on a business as a trader in Likoni, Mombasa, finds himself insolvent, and on 15 August 1997 files his petition in bankr

Requirements: Part I Access the IFRS and the Generally Accepted Accounting Principles (GAAP) of your country. a. Note ten differences between the two sets of GAAP. Part II Ac

A company has the following forecast demand for the next five months: 1,600, 2,400, 3,200, 2,800, and 2,400. The following information is also available.                  curren