MFRS112 - TEMPORARY DIFFERENCE

• Difference between the carrying amount of an asset or liability in the balance sheet and its tax base

Temporary Difference

• For examples: Depreciation, Interest income/expense, research and development, retirement benefits, fair value measurement.

• It can be either Deductible temporary difference or Taxable temporary difference.

Taxable temporary differences (TTD)

• TTD results in taxable amounts in determining taxable profit (tax loss) of future periods when the carrying amount of the asset or liability is recovered or settled.

Deductible temporary differences (DTD)

• DTD results in deductible amounts in determining taxable profit (tax loss) of future periods when the carrying amount of the asset or liability is recovered or settled

Tax base

• The tax base of an asset or liability is the amount attributed to that asset or liability for tax purpose.

Assets Carrying amount more than tax base

TTD

DTD

Yes

Carrying amount less than tax base

Yes

Liabilities Carrying amount less than tax base Carrying amount more than tax base

Yes Yes

ALL TEMPORARY DIFFERENCES (TTD & DTD) NEED TO BE ADJUSTED.

Items that are not allowable for tax purpose but will be incurred by the entity.

Examples of permanent items  Donations to unapproved charities  Entertainment expenses  Penalties and fines  Capitalising of dismantling costs and decommissioning costs (eg. to remove or retire a plane/ship from active service or to deactivate/shut down nuclear power plant).

FOR THE PURPOSE OF TAX COMPUTATIONS, NO ADJUSTMENTS NEED TO BE MADE IN RELATION TO PERMANENT ITEMS.

ď‚— Following equations are related to computation of

deferred tax liability and deferred tax assets:-

Deferred Tax Liability = TTD x Tax rate

Deferred Tax Asset = DTD x Tax rate