ACX2100 Chap.7 Deferred Tax: Tax Bases and Temporary Differences
Deferred Tax: Tax Bases and Temporary Differences
Deferred tax compares each accounting carrying amount with a tax-rule balance called tax base. For an asset, tax base is the amount deductible against taxable economic benefits when the carrying amount is recovered; if those benefits are not taxable, tax base equals carrying amount.
For a liability, tax base is carrying amount less future deductible amounts on settlement, with a separate formula for revenue received in advance. Asset directions are: carrying amount above tax base gives a taxable temporary difference and deferred tax liability; carrying amount below tax base gives a deductible difference and deferred tax asset.
Liability directions reverse: carrying amount above tax base gives a deductible difference and DTA; carrying amount below tax base gives a taxable difference and DTL. Trade receivables can have a net accounting carrying amount below a gross tax base where tax does not permit the accounting allowance until specific write-off.
A loan or permanently non-deductible penalty may have carrying amount equal to tax base and no difference. The closing tax effect is the temporary difference multiplied by the enacted or substantively enacted rate. The journal movement comes later, after opening balances are compared in Chapter 8.
What this chapter covers
- 01
Four-step deferred-tax process
- 02
Carrying amount as accounting balance
- 03
Asset tax-base definition
- 04
Liability tax-base definition
- 05
Revenue-received-in-advance special formula
- 06
Asset CA above and below TB
- 07
Liability CA above and below TB
- 08
TTD to DTL and DTD to DTA
- 09
Gross receivables and accounting allowance
- 10
Plant, prepayment, provision, loan and penalty examples
- 11
Gross closing DTA and DTL
AskSia-authored practice — classify six balances and compute closing deferred tax
- PlantPlant is an asset with CA above TB by $30,000: TTD and DTL $9,000.
- PrepayPrepaid insurance is an asset with CA above TB by $12,000: TTD and DTL $3,600.
- ReceivableReceivables are an asset with CA below TB by $4,000: DTD and DTA $1,200.
- LeaveAnnual leave is a liability with CA above TB by $28,000: DTD and DTA $8,400.
- ZeroLoan and penalties each have CA equal TB, so neither creates a temporary difference.
- TotalsGross closing DTL is $12,600 and gross closing DTA $9,600.
Key terms
- Carrying amount
- Accounting amount at which an asset or liability is recognised before the deferred-tax comparison.
- Tax base
- Tax-law amount attributed to future recovery of an asset or settlement of a liability.
- Taxable temporary difference
- Difference producing taxable amounts in future periods and therefore a deferred tax liability.
- Deductible temporary difference
- Difference producing future deductions and therefore a deferred tax asset, subject to recognition.
- Deferred tax asset
- Recognised future tax benefit from deductible differences or qualifying losses.
- Deferred tax liability
- Recognised future tax obligation from taxable temporary differences.
Deferred Tax: Tax Bases and Temporary Differences FAQ
What happens when an asset CA is above TB?
The asset has more accounting recovery than future tax deductions, creating a taxable temporary difference and DTL.
What happens when a liability CA is above TB?
The liability commonly carries a future deduction on settlement, creating a deductible temporary difference and DTA.
Why can receivables create a DTA?
Accounting may recognise a loss allowance before tax permits deduction. Net CA then falls below the gross tax base, creating a deductible difference.
Does a loan payable create deferred tax?
Ordinary repayment of principal is not deductible, so future deductible amount is zero and liability tax base normally equals carrying amount. On those facts there is no difference.
Exam move
Start every problem by writing the tax-base definition in words. For assets ask how much future deduction supports recovery; for liabilities ask how much future deduction arises on settlement. Prove all four matrix cases with one small number before attempting a mixed worksheet. Give receivables and revenue received in advance separate practice because their tax-base wording is easy to reverse.
Keep TTD and DTD gross and compute closing balances, but do not write a movement journal until opening DTA and DTL balances are provided. Week 6 prescribed reading is Chapter 13. Use a four-column card for every unfamiliar item: carrying amount, tax base, difference and consequence. Before naming DTA or DTL, describe whether future recovery or settlement will make taxable profit higher or lower than accounting profit.
Test the result against the matrix only after that explanation. Mix asset and liability examples with the same numerical relationship so that labels, not superficial greater-than signs, drive the answer. For revenue received in advance and provisions, draw the future tax event explicitly.
Then aggregate taxable and deductible differences separately, apply the enacted rate given in the question and resist netting away the gross balances. A closing worksheet is a measurement result, not automatically a journal: opening balances and recognition routes are still needed.
Working through Deferred Tax: Tax Bases and Temporary Differences in ACX2100? Sia is AskSia’s AI Accounting tutor — ask any ACX2100 Deferred Tax: Tax Bases and Temporary Differences question and get a clear, step-by-step explanation grounded in how ACX2100 is taught and assessed. Read this chapter free, then take your hardest questions to Sia.
