Financial Reporting · Module 4: Income taxes
Deferred Tax in Four Boxes
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Chapters
- 0:00Compare
- 0:18Assets
- 0:51Liabilities
- 1:37Recap
In short
Deferred tax comes from comparing an item's carrying amount with its tax base. An asset carried above its tax base, or a liability carried below it, creates a deferred tax liability; the reverse creates a deferred tax asset. Multiply the temporary difference by the tax rate.
- Asset: carrying amount above tax base gives a DTL; below gives a DTA.
- Liability: the other way round, e.g. income received in advance gives a DTA.
- No DTL on the initial recognition of goodwill.
Transcript
0:00Compare
Deferred tax looks hard. It's really one comparison and four boxes. Compare an item's carrying amount in the accounts with its tax base: what it's worth for tax.
0:18Assets
Start with assets. Equipment is in the books at $80,000. Its tax base is only $60,000, because tax depreciation ran faster. More deductions now means more tax later: a taxable difference of $20,000. At 30%, that's a deferred tax liability of $6,000. Flip it, and an asset below its tax base gives a deferred tax asset.
0:51Liabilities
Liabilities work the other way round. Rent received in advance was taxed when the cash came in. The liability is $60,000. Its tax base is zero. That's a deductible difference: a deferred tax asset of $18,000. A long service leave provision of $50,000 works the same way: a $15,000 asset. Pause. Goodwill of $500,000 isn't deductible. Is there a deferred tax liability? None. AASB 112 bans one on goodwill's initial recognition.
1:37Recap
Assets above tax base: liability. Liabilities above tax base: asset. Then multiply by the tax rate. Next time: one derivative, four answers, and a trap. Subscribe so you catch it.
Try a question on this lesson
From the EstatePass Financial Reporting bank. Answer it, then read the explanation.
On 1 June 2026, Quokka Ltd receives $60,000 in advance for services it will provide in August 2026. The amount is taxable when received. The tax rate is 30%, and future taxable profit is probable. What deferred tax arises from the revenue received in advance at 30 June 2026?
Sources
- AASB 112 Income Taxes, para 5, 15, 24
- CPA question bank: cpa-fr-0036, 0038
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