I am trying to finalise one of the company accounts. The figures are as follows.
The company is in first year of trading.
Profit/(Loss) before taxation (18,000)
Capital allowance 6,000 (depreciation 2,000)
I have passed the deferred tax liability(DTL) journal as 6000-2000*20%
Tax p&l 800
DTL 800
deferred tax asset journal has not been passed since the directors are not sure of future profits.
my doubt is should i add the amount of DTL 800/-to the P & l OR deduct it from P & l loss?
Since it is DR i taught of adding to the Loss of 18000/- and carry 18800/- to financial position. and reflect the DTL 800 in fianacial position as long term liabilities.
Your advice is appreciated
Thanks everyone.
Replies (5)
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The £800 you have calculated is a liability, if you provide for it. You mention a deferred tax asset that has not been provided for. You do not say what it arises from, but I am guessing that it is unrelieved losses carried forward. Is that right?
On the figures you set out I would provide for no deferred tax at all. In other words account for the tax benefit of the unrelieved losses insofar as it eliminates the deferred tax liability on the accelerated capital allowances, but no more.
I hope this answers your question.
Not sure what you mean by "pass for DTL"? If you mean "provide for the £800 deferred tax liability" yes that would increase the loss, as it would be a debit to the profit and loss account. As I said, the £800 is a liability, which is a credit balance in the balance sheet.