What is a Deferred Tax Liability and what is its purpose?Add Answer
The tax assessed or it is due for the current period and has not been paid yet, then it is known as Deferred Tax Liability. The difference in the timing when the tax is paid and is accrued is the time from which the deferral comes. It commonly arises in depreciating fixed assets, recognizing revenues and during the valuation of inventories.
The deferred tax liability also tells us how much more tax company has to pay in future because of the present transactions.
Reasons why deferred tax liabilities occur are:
I. Accounting of figures more than once.
II. Companies aiming only towards showing increased profits in order to increase the shareholders for their company.
III. Companies also follow the technique to increase the current profits in order to reduce the tax burden.