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Justify the provision of deferred tax using temporary differences in the financial statements of a reporting entity
Temporary differences arise because of the differences between the way accountants treat transactions and the way the tax authorities treat the transactions specifically on the basis of time and amount.
There are four main reasons why deferred taxes are important in truly understanding the financial situation or reporting entity:
1. It provides a more accurate calculation of accrual earnings
2. Provides a more accurate measure of the equity position.
3. Moderates earnings by/increasing tax liability in "good" years and decreasing the tax liability in bad years.
4. When deferred taxes decrease from one balance sheet to the next a tax reversal is created thereby providing a cushion for the reporting entity’s operations.
marto answered the question on February 14, 2019 at 06:22
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Date posted: February 14, 2019. Answers (1)
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Date posted: February 13, 2019. Answers (1)
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Additional information:
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Required:
a) Consolidated income statement for the year ended 30 April 2012.
b) Consolidated statement of financial position as at 30 April 2012.
Date posted: February 13, 2019. Answers (1)