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1. In our model, we calculated accounting and tax depreciation. What should this be classified as?
Deferred Tax Liability
Neither a Deferred Tax Asset nor a Deferred Tax Liability
Deferred Tax Asset
2. Why is this example calculating a Deferred Tax Liability?
Only tax losses give rise to Deferred Tax Assets
In the first period, tax depreciation exceeds accounting depreciation. As this is only a timing difference in the future, there will be a claw back of this excess – a deferred tax liability
Depreciation timing differences always give rise to Deferred Tax Liabilities
3. In the tax calculations, there is an interim control account (pictured). What is the primary reason that there is a requirement for a “mini control account”?
It makes it clear to the end user that the Deferred Tax Liabilities calculations have been completed (as there may be more than one reason for them)
It provides a sense check to ensure Deferred Tax Liabilities do not go negative
Movements in Deferred Tax Liabilities are required in the main control account. This is a Balance Sheet item. Movements do not appear in the Balance Sheet, only their cumulative totals – hence the reason for calculating the cumulative closing balance
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