Need clarification on two topics

CFA Level I
#1

  1. Are DTAs/DTLs current or noncurrent assets/liabilities? Is it based on the underlying asset and/or GAAP/IFRS reporting standards? If so, can someone provide the breakdown? If I was given a generic question with DTA as a line item (without mentioning GAAP or IFRS) on the balance sheet and asked to calculate the current ratio would I include it as part of current assets? Seems like there is some conflicting information online on whether to adjust for this or not.

  2. Tax rate as of current year: 25%. New law passes to change tax rate to 27% at start of the new year (or end of current year). When calculating new or existing DTA/DTL would I use 25% or the 27% as the tax rate? Is the answer different under GAAP/IFRS?

  3. Ex-Dividend Date vs Holder of Record Date. Consider the following scenario. I purchase a stock on Jan 1. Ex-dividend date is Jan 15. Holder of Record Date is Jan 17. 2018. I decide to sell my stock that I purchased on Jan 16. Would I still receive the dividend even though I sold before the Holder of Record Date? If not, why would anyone sell in between this window since the stock price is adjusted downward by the amount of the dividend on the ex-dividend date yet when I sold my stock on Jan 16 I receive the reduced stock price (reduced by dividend) without actually ever receiving the dividend. If this is not correct, can someone explain the significance of the Holder of Record date in terms of the dividend payment?

#2

It could be either. It depends on when you expect to receive the benefit / incur the payment.

Use the rate that will be applicable when you expect to receive the benefit of the DTA / pay off the DTL. Most likely, that’s the new rate.

The different dates reflect the historical time to update records: 3 days.

These days, it’s probably a matter of milliseconds, not days.

Either way, just know the days for the exam.

#3

Hi. Thanks for the response. Some follow up questions.

For #1: I believe I encountered this question in one of my QBank quiz questions and it was simply stated as a line item on the balance sheet, without clarification on whether it would be used or paid for in that current year. Therefore is that question lacking information for me to answer properly?

And in terms of GAAP vs. IFRS, are you aware of any differences in recognition when it comes to current vs. noncurrent DTA/DTL or perhaps effects on DTA/DTL when there are changes in tax rates? The reason I ask is I vaguely remember there being a potential difference from a reporting standpoint but I could be wrong.

Anyways, thanks again.

#4

On 1:

IAS 12 (revised), IN11:

IAS 12 (revised) requires that an entity which makes the current/non-current distinction should not classify deferred tax assets and liabilities as current assets and liabilities.

I.e. DTA/DTL are always classified as non-current in IFRS accounts.

US GAAP:

Classification is split between current and noncurrent components on the basis of either (1) the underlying asset or liability or (2) the expected reversal of items not related to an asset or liability.

#5

Excellent, thank you.