At the below link is a calculation that shows how to calculate income tax results from the calculation of deferred tax ( and vice versa). Sometimes it is worth to consider these two calculations at once to reduce the risk of error.

Generally, the idea is to determine the period-end balance of items, which at the time of booking are treated as non-tax deductible, but at some point may become tax deductible. Among others they include the balance of allowances for doubtful accounts, period-end balance of provisions, unrealized foreign exchange losses. You should determine their value at the OPENING and at CLOSING balance. These are called NEGATIVE temporary differences and the difference between them at CLOSING balance and OPENING balance is the amount that should adjust our gross result ? it should INCREASE it.

The same is true with period-end balance of items, which at the time of posting do constitute taxable income, but at some point they will be taxed. For instance they will include accrued incomes (not invoiced yet) or net unrealized foreign exchange gains. You should determine their value at the OPENING and at CLOSING balance. These are called POSITIVE temporary differences and the difference between them at CLOSING balance and OPENING balance is the amount that should adjust our gross result ? it should DECREASE it.

Finally, we should also add to the above adjusted gross result the sum of items for the reporting period that will never become tax deductible expenses (state interest for overdue taxes, representation above limits) and deduct incomes that will never become taxable. The above are called - are called PERMANENT differences for corporation tax.

In this way, we determine the basis for corporation tax. In addition, multiplying the sum of the CLOSING balance for the above set NEGATIVE temporary differences by tax rate we will receive the deferred tax assets, and by multiplying the sum of CLOSING balance for the above set POSITIVE temporary differences by tax rate we will get a provision for deferred tax.

Now you see how dependent these two calculation are. Deferred tax and current tax are like parents of corporation tax charge in the income statement. The above method can be seen on a simplified numerical example at the attached link: http://24ivalue.com/pages/elearning/book/4/page/6/


S.Ekman ? General Manager
FY AUDIT/24iValue

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