What is deffered tax liability and how it is adjusted in
future.Should we take it as part of networth
Answer / nupur jain
What happens is that the company estimates and sets aside one
particular sum every year as the tax, and at the end of the
year when the actual ta is paid, whatever extra money is left
is called deffered tax. This is added to reserves in the
balance sheet. So, while valuing a firm, this deferred tax
amount is to be added to the equity to find the value of
equity of the firm. In future, whenever the actual tax is
greater than the estimated ta, the extra amount is adjusted
from the deferred tax account.
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Expand---------OMLP
Liabilities: 2006 2007 Assets 2006 2007 Trade Creditiors 100 40 Cash atBank 100 65 Bills Payable 50 60 Account/R 105 120 Outstanding Expenses 25 20 B/R 130 140 Bonds Payable 220 140 Inventory 110 40 Accumulated Depreciation: Machinery 120 160 -on Machinery 30 35 Building 300 310 -On Building 75 85 Land 60 130 Reserves 100 115 Patents 55 60 Retained Earning 130 170 share Capital 250 360 Profit from operation after providing Rs.10,000as depreciation on building and Rs.10,000 on machinery and Rs.5,000 as amortization on patents for the year 'April 06- March07' was Rs.35,000. Other revenues for the year were Rs.40,000. An old machine with original cost of Rs.15,000 was sold at a loss of rs.5,000. Prepare Fund Flow Statment and Cash Flow Statment for the year ending March 31 2007 based on the information given above.
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