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Deferred Tax - Coggle Diagram

- - - - sometimes known as the full provision method.
      - year 2 (increasing)= amount of B/F from year 1 + balance to make it to the full amount for year 2
      - year 3 (decreasing)= amount B/F less amount to make it to the amount for year 3
      - year 4(when the CA=TB), the opening liability needs to be removed. DR LIABILITY CR EXPENSE
  - - - taxable profits are arrived at by adding back depreciation and deducting capital allowances from the accounting profits
  - - - good for cash flow in that it delays the payment of tax
    - - a liability is therefore recorded equal to the expected tax payable.
  - - - an increase in the liability, increases the tax expense
      - a decrease in the liability, decreases the tax expense
- - - - it would be necessary for entities to determine when the future tax would be recovered or paid
        
        In practice this is highly complex and subjective
        
        Therefore, to require discounting of deferred tax liabilities would result in a high degree of unreliability
        
        Furthermore, to allow but not require discounting would result in inconsistency and so a lack of comparability between entities.
- - - - The tax expense reported in each period is the tax consequences (ie tax charges less tax relief) of the items reported within profit in that period
- - - - However, the valuation approach is applied regardless of whether the resulting deferred tax will meet the definition of an asset or liability in its own right
  - - - Since the revaluation gains have been recorded in the equity, the tax related to the revaluation gains also need to be recorded.
      - For the tax portion to be recorded, the double entry also include CR deferred tax liability
      - The deferred tax liability is the future tax that will be paid when the asset is sold in the future
      - This is inconsistent with the CF as the def for liability is there needs to be present obligations
      - Therefore, the deferred tax liability arising on the revaluation gain should represent the current obligation to pay tax in the future when the asset is sold
      - However, since there is no present obligation to sell the asset, there is no present obligation to pay the tax