Deferred tax - Examples of deductible temporary differences

1. Trade receivables

Co X is a manufacturing company and has the following accounting and tax characteristics. (Tax rate 30%):

	Carrying amount	Tax base	Temporary difference
Trade receivables	100	100	0
Provision for doubtful debts	-50	0	-50
Trade receivables – net value	50	100	-50

In most jurisdiction, the provision will be deductible for tax purposes in future periods when the amounts are actually written off as bad debts. Hence, a deductible temporary difference will arise for the provision (<50>) .

So we have CAA 50 > TBA 100 ----> DTA of 50 * 30% = 15

2. Retirement benefits

	Carrying amount	Tax base	Temporary difference
Retirement benefit	100	0	100

Retirement benefit costs are deducted in determining accounting profits as service is provided by the employee, but are not deducted in determining taxable profit until the entity pays either retirement benefits or contributions to a fund. Hence, a deductible temporary difference of 100.

So we have CAL 100 > TBL 0 ----> DTA of 100 * 30% = 30