Deferred Tax Liability Question (Schweser P. 235)_

CFA Level I
#1

Hello Everybody,

I understand the question and calculations; however, I’m a little confused with the big picture.

The question shows you the Tax Return / Income Statement for a single asset and explains the concept of deferring taxes to a later period, which creates a DTL.

Basically, I’m confused as to why this is calculated on a single asset ONLY (I think)?

Any help clarifying this would be greatly appreciated.

Thanks,

#2

Income Tax authorities allow depreciation on block of like assets and the same goes for the accounting bodies rather than on individual asset basis.

Now DTL will come into play when taxation authority higher depreciation or recognize expense that you haven’t asked for which means you will have to fork out higher taxes in future provided these are temporary differences.

This is best to my knowledge.

Hope this helps

#3

I meant timing differences. sorry

#4

Yes, I understand that component. To be honest, I’m not exactly sure what was confusing me. I read the section in the CFAI Curriculum last night and it explained it in more detail. As well, it’s basicaly calculated on all assets in the real world, not just a single asset (unless that’s all the company has).

Thanks again