“Accelerated tax allowances will create a deferred tax liability as tax depreciation is higher than accounting depreciation in the early years of the asset’s life. In later years this will reverse creating a higher tax charge in later years. The company will create a liability today to recognize the tax payable in future.”
Can someone pls explain what are tax allowances and how they affect tax depreciation vs the accounting one?
I understand how DTL would be generated (bc of the higher tax depreciation, i.e. lesser taxable income), but not clear on the concept of tax allowance and its implication.