Please explain what are deferred tax assets and deferred tax liabilities in simple words - Accountancy - Accounting Ratios

Question

Please explain what are deferred tax assets and deferred tax
liabilities in simple words?

Manisha Arora · Accepted Answer

Deferred Tax
Assets - These are basically the
amount of income taxes that are recoverable in the next accounting
periods It can be used to reduce the next following
yearâ€™s income tax
expenses

Deferred Tax
Liabilities - These are basically the
amount of income taxes that are payable in the next accounting
periods This increases the next following yearâ€™s
income tax expenses

These are used in
calculating Return on Investment
(ROI) or Return on Capital Employed
Ratio

When capital employed is
calculated using liabilities approach- deferred tax assets are
deducted because it is a fictitious
asset

Similarly,when capital
employed is calculated using liabilities approach- deferred tax
liabilities are added to Shareholders' Funds because it is not an
actual liability (not payable by the
company)

Please explain what are deferred tax assets and deferred tax liabilities in simple words?