[pia ach]

A deferred tax liability is recognized for temporary differences that will result in taxable amounts in future years. Because the book value of the assets exceeds their tax basis, the accumulated tax depreciation must now exceed accumulated depreciation. In future years, this temporary difference will reverse as periodic book depreciation amounts exceed the corresponding tax amounts. Therefore, taxable amounts will result in future years as the assets become fully depreciated for tax purposes or (on a sale) when the tax gain exceeds the book gain (due to lower carrying value). Thus, a deferred tax liability currently exists.

Can someone please explain to me what does this mean?? After the first sentence i am lost 🙁

Finally done!!! Experience-pending. Ethics- Pending.
Reg 78 / 73/82.
Aud 74/89.
BEC 72 /78.
FAR 74/ 73/ 82.

[UHC2005]

Essentially,

If book value exceeds tax value, that means you have more depreciation than you can deduct in the current year, so it will need to be deducted in future periods. This causes a deferred tax liability.

If tax value is greater than book value, then the opposite is true. You would have more tax depreciation then book and it would reverse in your favor in future periods (call it a pre-payment of sorts), causing a deferred tax asset.

This is the gist of how it seemed to me doing MCQs on income tax last night.

Using Ninja MCQ, NINJA Notes, Audio, Flashcards and BLITZ, and 2014 Wiley Text

FAR - (61,63)
AUD - (68)

Keep Calm and RTMFQ

Accountant, what is best in life? To crush your MCQs, see them driven before you, and hear the lamentation of their SIMS!

[pia ach]

UHC2005 your explanation is so much easier to understand, thanks a lot!

Finally done!!! Experience-pending. Ethics- Pending.
Reg 78 / 73/82.
Aud 74/89.
BEC 72 /78.
FAR 74/ 73/ 82.

[Author]

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