Qns: Differences in current accounting and deferred tax and how to account for both Textbook Resource:...

Qns:

Differences in current accounting and deferred tax and how to account for both

Textbook Resource: Financial Accounting 9th Ed Deegan

Expert Solution

Tax expense of the company includes current and deferred tax. Total tax expense is recorded in income statement.

Current tax expenses are determined on the basis of tax laws applicable at the balance sheet date in the country where the company and its subsidiaries operate and generate taxable income. It is calculated by multiplying tax rate of an individual or business by the income received or generated before taxes.

Current tax expenses are shown as expenses in the statement of profit and loss.

Deferred income tax is determined on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the IFRS consolidated financial statements. Deferred income tax is determined using tax rates applicable at balance sheet date and will be applied when the related deferred income tax asset is realized or the deferred income tax liability is settled.

Deferred tax asset or deferred tax liability is created by debiting/crediting Statement of Profit and Loss.

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