According to AASB 112,the prepayment of rent of $2000 that is claimed as a tax deduction immediately upon payment (assuming an income tax rate of 30%)will give rise to:

Question

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The prepayment of rent will give rise to a temporary difference between the accounting profit and the taxable profit. Since the prepayment is claimed as a tax deduction immediately, the taxable profit will be reduced by $2000. However, since the accounting profit remains at $2000, there is a temporary difference of $2000. This temporary difference gives rise to a deferred tax liability of $600 (30% of $2000) because the tax deduction will result in lower taxes payable in the future when the prepaid rent is recognized as an expense for accounting purposes. Therefore, the correct answer is A, a Deferred Tax Liability of $600.

According to AASB 112,the Prepayment of Rent of $2000 That