Register now or log in to join your professional community.
Hi Sultan,
The concept of deferred taxation is rather simple.
The first time a difference occurs, the following needs to be done:
If your tax liability 'increases' because of the difference in recorded and taxable deductable depreciation it means you'll have to pay less tax in the future (which is an asset for you) - so you create a 'deferred tax asset' / 'DTA' reserve on the 'assets' side.
If your tax liability 'decreases' because of the difference in recorded and taxable deductable depreciation it means you'll have to pay more tax in the future (which is a liability for you) - so you create a 'deferred tax liability' ''DTL' reserve on the 'liability' side.
Eventually, the same liability turns to asset and vice versa. Hence each timing difference should be tracked according to the nature of expenses. Therefore, say, if there was 'DTA' created but now there is a libility arising - then the DTA should be reversed and a new DTL reserve should NOT be created since it's for the same expense. (and vice versa).
Hope this has been of some help! :) If anything wasn't clear, feel free to ask me.
