1. AC506 lecture 18 Deferred tax Sources: –Elliott & Elliott, chapter 13 –Alexander & Britton, chapter 21

2. Background Accounting profit v. taxable profit –Subjectivity in accounting e.g revenue recognition motivations –Policy choices e.g depreciation Permanent differences –expenses that will never be deductible for tax purposes Temporary differences –expenses that will be deductible for tax purposes but not in the same period that they will be deductible for accounting purposes

3. AC506 lecture 18 New fixed asset acquired at beginning of year 1 for €15,000. Depreciation policy is 33.3% SL, no residual value Capital allowances may be claimed for tax purposes - 15% per annum for six year and 10% in seventh year Applicable corporation tax rate of 20%

4. Issues to consider Deferred tax is not a legal liability until it accrues Deferred tax is confusing - tax charge doesn’t reflect the expense incurred Permanent differences undermine the deferred tax matching theory anyway! Deferred tax accounting is an excellent example of accrual accounting An environment in which substance over form is encouraged justifies accounting for deferred tax.