Deferred Tax Assets
Future income tax savings from timing differences, such as tax depreciation slower than book depreciation. On the Balance Sheet.
In detail
Deferred Tax Assets records income tax the company will save in future because of timing differences between the books and the IRD's rules: a provision for doubtful debts the IRD will only allow when the debt is actually written off, or depreciation the books charge faster than the tax pools permit. The asset is the difference multiplied by the tax rate, and it unwinds as the differences reverse. It is a year-end figure computed by the auditor, posted once by Journal Entry against the Deferred Tax expense account, and it is only recognised when future taxable profits are likely. A small trading company often has none; a company with large provisions or tax losses carried forward does.
Formula
Deferred Tax Asset = Deductible temporary differences x Income tax rate (25% for most companies).
Accounting entry
| Account | Debit | Credit |
|---|---|---|
| Deferred Tax Assets | Rs 12,000 | |
| Deferred Tax | Rs 12,000 |
How to record it in BRAccount
- 01After the year-end tax computation, get the deferred tax working from the auditor.
- 02Go to Invoicing > Journal Entry > New dated Ashadh end; debit Deferred Tax Assets, credit Deferred Tax.
- 03Submit. The entry above posts for provisions not yet allowed by the IRD.
- 04Next year, reverse the part that unwinds by the opposite entry.
- 05Open Financial Reports > Balance Sheet to see it under Non-Current Assets.
When to use it
Post by Journal Entry at year end after your auditor computes the figure. The other side goes to Deferred Tax expense.
Example from the demo books
Dr Deferred Tax Assets Rs 12,000, Cr Deferred Tax Rs 12,000 at Ashadh end 2084 for provisions not yet allowed by the IRD.