Question

What does it mean to have a “future taxable amount” and give an example of a temporary difference that would create a deferred tax liability, and what does it mean to have a “future deductible amount” and give an example of a temporary difference that would create a deferred tax asset?

Answer 1

Future taxable amount means

Company will be able to earn profits in future which will be taxable and temporaray differences that company is realising now can be adjusted into that future income that will be taxable in coming periods.

Example of deferred tax liability - this is a case where company has been allowed a deduction more than books but in coming periods company will need to reverse this difference

When a company has been allowed depreciation more than what it has charged in the books.

Future deductible amount is an amount which is not allowed as a deduction now but will be allowed in next periods, example of it is Provision for bad debts, they are allowed when actual bad debts take place.

Example of deferred tax asset

When a company has been allowed depreciation less than what it has charged in the books.

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