How Do You Answer Deferred Tax Questions in ACCA FR?

Deferred tax under IAS 12 is one of the topics students find most confusing, but the exam approach is systematic. Deferred tax arises from temporary differences — differences between the carrying amount of an asset or liability and its tax base. Identify those differences, and the calculation follows a reliable pattern.

Understand temporary differences

A temporary difference is the gap between an item's accounting carrying amount and its tax base:

• A taxable temporary difference gives rise to a deferred tax liability (tax payable in future periods).
• A deductible temporary difference gives rise to a deferred tax asset (tax recoverable in future periods), recognised only to the extent it's probable future profits will be available.

Common sources in FR

The usual culprits are accelerated tax depreciation versus accounting depreciation, revaluations of assets, and provisions or income taxed on a different basis. In consolidations, fair-value adjustments on acquisition also create temporary differences.

Measure and present

Multiply the temporary difference by the tax rate expected when it reverses. The movement in the deferred tax balance goes to profit or loss — unless it relates to an item recognised in other comprehensive income (like a revaluation), in which case the tax follows it to OCI.

Practising full deferred-tax questions and marking them against the official ACCA scheme with The 50% Club shows you exactly where your temporary differences or presentation lose marks — the fastest way to demystify IAS 12.