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Deferred tax

Introduction to deferred tax

1.1 What is deferred tax?

Deferred tax is the estimated FUTURE tax consequences of
transactions recognised in the CURRENT financial statements.

It is an application of the ACCRUALS concept and attempts to
eliminate the mismatch between ACCOUNTING PROFITS and
TAXABLE PROFITS.

1.2 What causes deferred tax?

Temporary differences between:

 the CARRYING VALUE (CV) of an asset or liability, and

 its TAX BASE.

e.g. Differences between the carrying value of PPE and the tax
written down value of PPE caused by accelerated capital allowances.

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