Brilliant Example Of Deferred Tax Liability
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In year 2 depreciation is same for both accounting and tax purpose.
Example of deferred tax liability. Adjustments are done on the basis of the FIFO method. Consider a company that sold a 1000 piece of furniture with a 20 tax rate which is paid for in monthly installments. 20 Lac and taxable income is Rs.
Suppose in the above example of the Rs 200000 Rs 80000 reverses within the tax holiday period so DTL is created only on the balance. Example of deferred tax assets is the carryover of losses. Suppose a business purchases equipment at a cost of 4000 which is subject to the following tax depreciation and book depreciation rates.
Lets say book profit before tax is 1500 and provision for bad debt is 500 and tax. In the first case of the difference deferred tax liability is created as the taxable difference will increase the liability of the company to pay the tax in the future periods and in the second case of the difference deferred tax asset is created as the deductible difference and will result in the decrease of the tax which will be paid in the future periods to come Schrand 2003. See What are some examples of deferred revenue becoming earned revenue.
The difference of 40000 is deferred to future period and reported on balance sheet as Deferred Tax Liability DTL. Deferred Tax Liability Depreciation is the most common example of Deferred Tax Liability. When the accounting income is more than the taxable income deferred tax liability is created.
Cover some of the more complex areas of preparation of a deferred tax computation for example the calculation of deferred tax balances arising from business combinations. It is the tax difference which we are saving now since we had to pay more but we are paying less on taxable income. Deferred tax assets are shown under the heading non-current assets and deferred tax liability is shown as non-current liability.
Deferred tax liability is created only when the timing differences originate in the tax holiday period and reverse after the tax holiday. Therefore income tax expense and tax payable are same. Deferred Tax Liabilities Examples One common cause of deferred tax liability is if a company uses accelerating depreciation for tax calculation and the straight-line method for accounting purpose.
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