GYV Ltd has the following deferred tax balances as at 30 June 2019. Deferred tax asset $9 00 000 Deferred tax liability $7 00 000 The above balances were calculated when the tax rate, was 20 per cent. On 1 December 2019 the government raises the corporate tax rate to 25 per cent. Required: Provide the journal entries to adjust the carry-forward balances of the deferred tax asset and deferred tax liability.

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Deferred Tax

Deferred tax is an estimated future tax which is made while preparing accounts. It is estimated as a result of past and present transactions in the financial statements. It is not the actual tax which needs to be paid or refundable from the revenue authority, it is an accounting entry. It exists because of the difference between accounting profits and taxable profits.