Bizblog term of the week: Deferred Tax

     We will be looking at deferred tax from 2 different views,we have deferred tax asset and deferred tax liability.

    Deferred tax assets are asset used to reduce the tax liability of a company at a later period.It is created due to taxes paid or carried forward but not yet recognized in the income statement and it can arise due to net loss carry-overs.Deferred tax assets reflects the fact that a company expects to be able to claim tax depreciation in excess of accounting depreciation.

    Deferred tax liability indicates that a company owes income tax and will pay more in future date.A company recognizes a deferred tax liability where accounting carrying value is greater than the tax written down value or tax base of such asset.

     Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates/laws that have been enacted or substantively enacted by the end of the reporting period. The measurement reflects the entity's expectations, at the end of the reporting period, as to the manner in which the carrying amount of its assets and liabilities will be recovered or settled. 

    Deferred taxes arises as a difference between the carrying value of a company's asset and the tax written down for such asset and are accounted for in accordance with IAS 12(International accounting standard) which is on INCOME TAX.