Deferred Taxation

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1. Timing differences, Temporary differences and Permanent differences Timing differences, focus on profit and loss movements, and pertain to the difference between the taxable amount and the pre-tax accounting profit that originate in one reporting period and reverses in one or more subsequent periods.


Such differences only impact on the taxation computation of one period.
Deferral method is where the tax effects of current timing differences are deferred and allocated to future periods when the timing differences reverse. Since deferred tax balances in the balance sheet are not considered to represent rights to receive or obligations to pay money, they are not adjusted to reflect changes in the tax rate or the imposition of new taxes. Under the deferral method, the tax expense for a period comprises of provision for taxes payable and the tax effects of timing differences deferred to or from other periods. Liability Method is where the expected tax effects of current timing differences are determined and reported either as liabilities for taxes payable in the future or as assets representing advance payment of future taxes. Deferred tax balances are adjusted for changes in the tax rate or for new taxes imposed. The balances may also be adjusted for expected future changes in tax rates. ...
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