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1. How many lines from this Taxation control account must be directly referenced in the financial statements to make the Balance Sheet balance?
2. Why is this example calculating a Deferred Tax Asset?
Initially, tax losses were created but no tax credit was received. In the future, provided certain conditions are met stipulated by local jurisdictions, future tax liabilities may be (partially) offset by these losses carried forward, i.e. in the future they will be an asset – a deferred tax asset
Tax losses always give rise to Deferred Tax Assets
Only depreciation gives 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 this “mini control account”?
It makes it clear to the end user that the Deferred Tax Assets calculations have been completed (as there may be more than one reason for them)
It provides a sense check to ensure Deferred Tax Assets do not go negative
Movements in Deferred Tax Assets 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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