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1) a) What is a temporary difference? Explain how you determine whether a temporary difference gives...

1) a) What is a temporary difference? Explain how you determine whether a temporary difference gives rise to a deferred tax asset or a deferred tax liability.

b) Does a long-service leave liability result in a temporary difference? Explain why, or why not.

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Answer #1

Temporary difference is difference between carrying value of an asset and liability in the balance sheet and its tax base.

If the difference increase future taxability then it's deferred tax liability.

If the difference decrease future taxability then it's deferred tax asset.

2. Effect of long service leave on deferred tax.

It doesn't effect temporary difference. It is allowed as deduction and has no effect on profit and loss account. However it can be claimed as tax deduction by transferring to profit and loss account and reducing the amount from net profit.

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