Question

Various tax-deferred transactions, where there's realized gain or loss, but it is deferred to the future (not currently recognized). Why do you think there exists such tax laws? Hint: the wherewithal-to-pay principle and the control principle

Answer 1

The main reason for the existence of deferred tax is due to the principle of matching concept.

Matching concept requires recognition of revenue and their related expenses in the same accounting period.

Taxable income differs from accounting income and creates problems for matching revenue against the taxes of the same accounting period.

Hence, these differences (temporary differences only) are eliminated by creation of Deferred Tax Asset/Deferred Tax Liability as the case may be.