Hi Guys, I have a couple of queries with regards to deferred taxes: a) Would the figure found on the income statement’s tax expenses be the same amount as those founnd on the cash flow statement from operations? b)What would happend to a firms deferred tax asset’s were a firm to liquidate itself? Thanks
- Look into the basis of cashflow and income statement - Cashflow( cash basis), the tax expense is a cash outflow that actually paid to inland revenue which calculated based on taxation laws. - income statem ent tax expense is calculated based on profit before taxes and it is adjuested to under or over provision of taxation in the previous year. 2) Not too sure.
a) These are not same as in the cash flow from operation there’s an actual cash outflow whereas in the income statement it is the tax on the profit before tax figure in the income statement. From the income statement point of view, there’s no actual cash outflow but that is the amount payable to taxation authorites for that tax period. b) —Deferred tax can only be recognised when it is highly likely that the company will generate sufficient profits in future periods. —It can also be recongnised if the company has sufficient taxable temp. difference from which it can be set off. These temporary difference will have to reverse whether the company operates or is dissolved. —It aquires another company where acquiree’s future losses can be utilised to realise the deferred tax asset. 1st one is irrelevant so cannot be recongnised. 2nd one is possible if there are taxable temporary differences in place. 3rd I dont think this is the case. Cheers Sumo