Deferred tax liabilities are defined by this Standard as
“the amounts of income taxes payable in future periods in respect of taxable
temporary differences”.The temporary differences are the differences between
the carrying amount of an asset and liability and its tax base.
Tax base is the
value of an asset or liability for the tax purposes. The tax base of a
liability is usually its carrying amount less amounts that will be deductible
for tax in the future. The tax base of an asset is the amount that will be
deductible for tax purposes.The carrying values of assets and liabilities are not
always the same as tax bases.
It is believed that the liabilities will be
settled and the assets will be recovered eventually over time and at that point
of time their tax consequences will crystallize.Two types of temporary differences can arise
i.e.
taxable temporary difference and deductible temporary difference.
The taxable temporary difference results in the payment
of taxes when the carrying amount of a liability is settled or the carrying
amount of an asset is recovered. Taxable temporary differences give rise to
deferred tax liabilities. A deferred tax liability arises·
- If the
carrying value of an asset is greater than its tax base OR·
- If the
carrying value of a liability is less than its tax base.
Deductible temporary differences result in amounts being
deductible when determining the taxable profit or loss in the future period
when assets or liabilities are recovered or settled. Deductible temporary
differences give rise to deferred tax assets. A deferred tax assets arises·
- If the
carrying value of an asset is less than its tax base OR·
- If the
carrying value of a liability is greater than its tax base.
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