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Market participants: Assumes a transaction in the principal (or most advantageous) market by knowledgeable and willing buyers and sellers.

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8 views

Ifrs 9

Market participants: Assumes a transaction in the principal (or most advantageous) market by knowledgeable and willing buyers and sellers.

Uploaded by

dannesandberg
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Deferred Taxes Overview

Deferred taxes arise due to timing differences between a company's accounting income (financial
reporting) and taxable income (tax reporting). These differences are temporary and will reverse in
the future, leading to either:

 Deferred Tax Liability (DTL): Tax payments that the company will owe in the future.
 Deferred Tax Asset (DTA): Tax benefits the company will be able to use in the future.

Types of Deferred Taxes

1. Deferred Tax Liability (DTL)

 What It Means: Company will pay more tax in the future.


 Why It Happens: When taxable income is lower than accounting income.
 Example: Accelerated depreciation is used for tax (more deduction now), while straight-line
depreciation is used for financial reporting.
o Result: Taxable income is temporarily reduced, but will increase later.

2. Deferred Tax Asset (DTA)

 What It Means: Company will pay less tax in the future.


 Why It Happens: When taxable income is higher than accounting income.
 Example: Warranty expenses are recorded in financials now, but the actual costs are only
deductible when incurred.
o Result: Higher taxes now, with a tax benefit available later.

Why Deferred Taxes Matter

 Deferred Tax Liability means higher taxes in the future.


 Deferred Tax Asset means a future tax benefit (e.g., reduced tax payments).
 Helps investors understand a company’s future cash flows and financial health.

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