Any company are prepared pretax income statement for book purpose also they are compute tax for govt. tax regulation purpose respectively. So, for that two reasons some differences are exist, for example, in the timing of revenue recognition and the timing of expenses recognition.
The definition of deferred tax asset and liabilities are-
The deferred tax consequenes attributable to taxable temporary differences.
ABC Company pretax income BDT. 100000, Depreciation Charge in income statement is BDT. 30000 but tax purpose depreciation is BDT. 46000.
Rent income shown BDT. 120000, but Tax authority measure BDT. 22000 more.
Fine imposed for pullution shown as expenses BDT. 11000.
Tax Rate 30%
DTL = Deferred Tax Liability = Excess Depreciation to be charged as per tax authority.
Amount = BDT. 46000-30000 = 16000
DTA = Deferred Tax Asset = Excess Rent income Charged as per tax Authority.
Amount = BDT. 22000
So, Taxable income = (income as per book + non-allowable expenses) + Deferred tax asset (DTA) item – Deferred Tax Liability (DTL) item
= BDT. 116000
So, Journal Entry:
Dr. Income tax Expenses (100000+11000)*30% BDT. 33300
Dr. Deferred tax asset (22000*30%) BDT. 6600
Deferred tax liability (16000*30%) BDT. 4800
Income tax payable ( 116000*30%) BDT. 35100
if you have any queries please comments.