Sinfonia Ltd made credit sales for this period of $100 000.The allowance for doubtful debts for these sales is $3000.For taxation purposes the amount provided for doubtful debts is not tax-deductible and the taxation office has included the $100 000 in taxable income.The tax rate is 30%.What is the deferral arising from this situation?

Question

Quizplus · Accepted Answer

The deferral arises because the allowance for doubtful debts ($3000) is not tax-deductible, but for accounting purposes, it reduces the income. This creates a temporary difference that will reverse in the future when the debt is either written off or paid. The tax effect of this temporary difference ($3000) at a tax rate of 30% is a deferred tax asset of $900 ($3000 * 30%).

Sinfonia Ltd Made Credit Sales for This Period of $100