Deferred Tax in simpler terms

As per IAS 12, a Deferred Tax Liability is the income tax that will be due in the future because of taxable temporary differences.

To fully grasp this definition, we need to understand what temporary differences mean.

Temporary differences refer to the difference between an asset's carrying amount (CA) in the financial statement and its tax base (TB), which is the amount attributed to that asset or liability for tax purposes.

In financial statements, Non-Current Assets (NCA) are subjected to depreciation, while for tax purposes, NCA are subjected to tax deductions, also known as capital

The difference between the two depreciations results in a temporary difference between the carrying amount and the tax base.

To illustrate further, let's consider an example of a NonCurrent Asset worth $1000 that was purchased at T0, which is depreciated on a straight-line basis over two years, with an annual depreciation of $500. The tax depreciation granted by the tax authority is T1 - $750 and

The carrying amount of the asset at T1 is $500, while the