DEFERRED

TAX
 DEFINITIONS OF KEY TERMS
Accounting Profit: Net profit or loss for a period before deducting tax expenses.
Taxable Profit (Tax loss): The profit (loss) for a period, determined in accordance with the rules
established by the taxation authorities, upon which income taxes are payable (recoverable).
Tax expense (tax income): The aggregate amount included in the determination of net profit or loss for
a period in respect of current tax and deferred tax.
Current tax: The amount of income taxes payable (recoverable) in respect of the taxable profit (tax
loss) for a period.
Deferred tax: is an accounting measure, used to match the tax effects of transactions with their
accounting impact and thereby produce less distorted results.
Deferred tax liabilities: are the amounts of income taxes payable in future periods in respect of taxable
temporary differences.
Deferred tax liabilities: A deferred tax asset is an item on the balance sheet that results from the
overpayment or the advance payment of taxes. It is the opposite of a deferred tax liability, which
represents income taxes owed. A deferred tax asset can arise when there are differences between
tax rules and accounting rules.
Income
Tax

Current income tax Deferred income tax

-Payable to tax office -Accounting measure

SUBSTANCE

BASIS -Taxable profit (loss) -Temporary difference

TIMING -Current period -Future period

Taxable temporary differences
 Why do we recognize deferred
tax?
A. Adjustments for the deferred tax are made in accordance with the accruals concept and in
accordance with the definition of a liability in the conceptual framework, i.e. a past event has
given rise to an obligation in the form of increased taxation which will be payable in the
future. The amount can be reliably estimated. A deferred tax asset similarly meets the
definition of an asset.

B. If the future tax consequences of transactions are not recognized, profit can be overstated,
leading to overpayment of dividends and distortion of share price and EPS.
 Exercise#01
State the tax base of each of the following assets and any temporary difference arising.
(a) A machine cost BDT 10,000 and has a carrying amount of BDT 8,000. For tax purposes,
depreciation of BDT 3,000 has already been deducted in the current and prior periods and the
remaining cost will be deductible in future periods, either as depreciation or through a
deduction on disposal. Revenue generated by using the machine is taxable, any gain on
disposal will be deductible for tax purpose.
(b) Interest receivable has a carrying amount of BDT 1,000. The related interest revenue will
be taxed on a cash basis.
(c) Trade receivables have a carrying amount of BDT 10,000. The related revenue has
already been included in taxable profit (tax loss).
(d) A loan receivable has a carrying amount of BDT 1m. The repayment of the loan will have
no tax consequences.
 Exercise#01 Solution

A. The tax base of the machine is BDT 7,000. The temporary difference is BDT 1,000

B. The tax base of the interest receivable is nil. The temporary difference is BDT 1,000

C. The tax base of the trade receivables is BDT 10,000. No temporary difference.

D. The tax base of the loan is BDT 1m. No temporary difference.

 Exercise#2

State the tax base of each of the following liabilities and any temporary difference arising.
A. Current liabilities include accrued expenses with a carrying amount of BDT 1,000. related
expenses will be deducted for tax purposes on a cash basis.
B. current liabilities include interest revenue received in advance, with a carrying amount BDT
10,000. the related interest revenue was taxed on a cash basis.
C. Current liabilities include accrued expenses with a carrying amount of BDT 2,000. The
related expenses has already been deducted for tax purpose.
D. A loan payable has a carrying amount BDT 1m. The repayment of the loan will have no tax
consequences.
 Exercise#2 Solution
A. The tax base of the accrued expenses is nil. The temporary difference is BDT. 1,000.

B. The tax base of the interest received in advance is nil. The temporary difference is 10,000.

C. The tax base of the accrued expenses is BDT 2,000. No temporary difference.

D. The tax base of the loan is BDT 1m. No temporary difference.

 Presentation

In the statement of financial position, tax asset

and liabilities should be shown separately
from other assets and liabilities.
 Global Heavy Chemicals Ltd.
Statement of profit or loss and others Comprehensive Income
For the year ended June 30,2023
Net sales 547,672,137
Cost of Goods Sold (385,783,150)
Gross Profit 161,188,987
Administrative Expenses (44,600,089)
Selling & Distribution Expenses (5,791,309)
Operating Income 111,497,589
Financial Expenses (17,485,715)
Profit before Other Income 94,011,874
Other Income 1,025,227
Profit before tax 95,037,101
Provision for current tax (3,376,074)
Provision for Deferred tax (24,033,789)
Net Profit After tax 67,627,238
 14. Deferred tax (Asset)/Liabilities
Written down value excluding Land (Account Base) 2,346,156,128
Written down value excluding Land (Tax Base) 699,146,861
Temporary Difference 1,647,009,267
Tax rate 27.5%
Deferred tax (Asset)/Liabilities 411,752,417

14.01. Provision for Deferred Tax

This represents provision is made for deferred income tax to pay future income tax liability for temporary
differences which is arrived at as follows:
Temporary differences which is arrived at as follows:
Deferred tax (Asset)/Liabilities as on June 30,2023 411,752,317
Less: balance as on July 01,2022 387,718,528
Provision made for the current year 24,033,789
 Mokam Limited
Consolidated Statement of profit or Loss and Other Comprehensive Income
For the year ended 30 June 2023
Revenue 18.00 601,207,033
Cost of Goods Sold 19.00 427,318,771
Gross Profit 173,888,262
Administrative Expenses 20.00 99,245,809
Selling and Distribution Expenses 21.00 3,009,910
Operating Profit 71,632,543
Financial Expenses 23.00 637,251
Profit Before Tax 70,995,292
Current Income tax Provision 1,897,220
Deferred tax Income/(Expenses) (7,626,845)
Net Profit After tax 76,724,917
7.00 Deferred tax Assets/(Liabilities)
Opening balance – Deferred tax assets/Liabilities) (4,233,796)
Less: Deferred tax (Income)/Expenses 7,626,845
Deferred tax assets/(liabilities) 3,393,049

Deferred tax assets/(liabilities)

1) Fixed Assets:
Tax base 138,931,491
carrying amount 125,359,295
taxable temporary difference 13,572,196
2) Tax Rate 25%
3) Deferred tax assets/(Liabilities) (1*2) 3,393,049
Less: Opening Balance (4,233,796)
Add/Less: Adjustment made during the year -
Deferred tax(Income)/expenses (7,626,845 )