Example

PBDT
Accounting depn
PBT
PBDT
Tax depn
Taxable profit
Current tax

Company X
Profit Before Depreciation and Tax
Bought computer
Depreciation for accounting
Tax depreciation
Tax rate
Year 1
Year 2
Year 3
50000
50000
50000
10000
10000
10000
40000
40000
40000
50000
15000
35000
10500

50000
15000
35000
10500

50000
0
50000
15000

Taxable temporary difference = Difference between Carrying amoun

Carrying amount = Cost of Asset - Accumulated book depreciation
Tax base = Cost of asset - Accumulated Tax depreciation
Deferred Tax Liability = Tax on Temporary difference

Year 1
Year 2
Year 3

Accum.
Asset
Book
Cost
Book Depn Depn
30000
10000
10000
30000
10000
20000
30000
10000
30000

Deferred Tax Expense = Change in deferred tax liability over a perio

Deferred Tax
Expense
(Change in
Deferred DTL over
Tax
previous
Liability year)

Current
Tax
Expense

Year
Year
Year
Year

0
1
2
3

0
1500
3000
0

1500
1500
-3000

10500
10500
15000

Disclosure in P&L Statement

Year 1
PBDT
Depreciation expense
PBT
Income Tax expense:
Current Tax
Deferred tax
Profit after tax

50000
10000
40000
10500
1500

12000
28000

10500
1500

50000
30000
10000
15000
30%

3 years
2 years

een Carrying amount of asset and Tax base

book depreciation
eciation
Tax Base
Accum. (Cost Taxable
Deferred
Carrying
Tax
Accum. Tax Temporary Tax
amount
Depn
Depn)
difference Liability
20000 15000
15000
5000
1500
10000 30000
0
10000
3000
0
0
0
0
0

liability over a period

Income
Tax
Expense
(CTE+DTE)

12000
12000
12000

Year 2
50000
10000
40000

12000
28000

Year 3
50000
10000
40000
15000
-3000

12000
28000