business

buys machine for 900000 It will apply straight line depreciation over 3 years Depreciation charge Tax authortities give 100% capital allowances for this type of machinery Tax rate is 50%

300000 per annum mean free depreciation

$000's Accounts Year profit before Tax Taxation Rax Payable Profit before tax Add back Depreciation Adjusted PBT Capital Allowance Taxable Profit Tax Payable Amount transferred to Deferred Tax Account Deferred Tax Balance (aka tax equalisation in the US)

1 1000 500 1000 300 1300 900 400 200 300 300

2 1200 600

3 1300 650 (Amounts charged in accounts on an accrual basis)

300 1500 0 1500 750 -150 150

300 1600 0 1600 800 (Amount of tax actually paid based on Revenue assessment( -150 (Difference between the accounts and the tax payable) 0

Current Tax Deferred Tax Future Tax - assed by taxman but payable further than 12 months out

Current liabilities - payable within 12 months of BS date Term Liabilities (or Fixed assets if negative) Term Liabilities - payable more than 12 months after BS date