Deferred tax - Examples of taxable temporary differences

1. Asset depreciation

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

 

Carrying amount

Tax base

Temporary difference

Building - gross value

100

100

0

Building - depreciation

-10

-20

10

Building - net value

90

80

10

Building is depreciated for accounting purposes on a straight line basis over ten years and five years on a straight line basis for tax purposes. Hence, a taxable temporary difference of 10.

So we have CAA 90 > TBA 80 ----> DTL of 10 * 30% = 3

2. Interim interest payments 

 

Carrying amount

Tax base

Temporary difference

Interim interest payments

100

0

100

The interim interest payments have been capitalized and will be amortized, but were deductible in determining taxable profit in the period in which they were incurred. Hence, a taxable temporary difference of 100.

So we have CAA 100 > TBA 0 ----> DTL of 100 * 30% = 30

3. Provision recorded for tax purpose 

 

Carrying amount

Tax base

Temporary difference

Provision recorded for tax purposes

0

100

-100

In the consolidated accounts, the provision recorded for tax purposes is eliminated, but has an impact on the amount of tax. Hence, a taxable temporary difference of 100. 

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