Deferred tax assets and liabilities arise from temporary differences in accounting profit and taxable income. Deferred tax assets represent taxes that have been paid (or often the carrying forward of losses from previous periods) but have not yet been recognised on the income statement. Deferred tax liabilities occur when financial accounting income tax expense is greater than regulatory income tax expense. At the end of each reporting period, deferred tax assets and liabilities are recalculated by comparing the tax bases and carrying amounts of the balance sheet items. The changes in deferred tax assets and liabilities are added to income tax payable to determine the company’s income tax expense (or credit) as it is reported on the income statement.
Realisability of Deferred Tax Assets
