Valuation Account for Deferred Tax Assets

To know valuation account for deferred Tax Assets is not difficult but for this, you have to know deferred tax assets, liabilities and valuation account. After this, you can easily understand the meaning of valuation account for deferred tax assets.

1. What is Deferred Tax?

Every assessee has to pay income tax on the taxable income which he or company has earned in previous year. This taxable income is calculated through making of profit and loss account. But there are lots of expenses which are not accepted by income tax authorities. For example depreciation which is calculated through fixed Instalment method is not accepted by tax authority. So, if company has paid tax according to his  accounting rules. He will adjust his calculated profit according to tax law. Difference of this will either payable tax in future or receivable in future. This will be deferred Tax.

2. What is Deferred Tax Liability?

If tax is payable in future due to above 1. reason, it will be deferred tax liability. For example, we paid tax after adjustment of provision for doubtful debt but it did not happen in future. So, this adjustment will be cancelled and we have to pay tax on this provision for doubtful debt. This tax liability will be our deferred tax liability.

3. What is Deferred Tax Assets?

We have bought an machinery with Rs. 2000 Crores on April. 2009. We do not know the present rates of income tax. For example, we charge income tax with 10% but income tax rate is 20%. Now, depreciation as per our calculation is Rs. 200 Crores and as per income tax department is Rs. 400 Crores on 31st March 2010. It means, we have paid more tax due to less calculation of depreciation Rs. 200 Crores. Now  Rs. 61.8 Crores (30% tax + 3% educational cess) deferred tax  will be receivable as deferred tax. We show it as current current asset  in the balance sheet.

4. What is Valuation Account?

Valuation account is an account which is used for bringing any asset on its current value instead of book value.   For example provision for doubtful debt account is valuation account because it is helpful for bringing debtor account on its  current value instead of its book value.

5. What is Valuation Account for Deferred Tax Assets?

Now, we reach to define valuation account for deferred tax assets. This account is also helpful for bringing deferred tax assets at its current value. Following example will explain it clearly.


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Accounting Education: Valuation Account for Deferred Tax Assets
Valuation Account for Deferred Tax Assets
Accounting Education
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