Question

‘A temporary difference relating to employee benefits obligations for long-service leave creates a deferred tax.’.

Required

Critically evaluate the above statement.

Answer 1

Deferred tax asset refers to the asset which is created when a particular items of temeprory difference leads to excess cash follow of taxes at present but in future that item will lead to lower cash outflow of taxes as that item will be tax deductible in future. In case of Employee Benefits obligation, since the employer has booked the expense for it in the current accounting period but, the payment has to be made for these benefits in future. As per tax laws these expenditure are allowed on payment basis, so these will be allowed in future when actual payment for benefits will be made, so at present these will lead to temeprory difference which will lead to creation of deferred tax asset.

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