An income tax question (Reading 27)

CFA Level I FRA
#1

I have some confustion around Question 12-14 of this reading. The information is listed as follows:
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My questions are:

  1. Do the numbers under :income taxes - Current (hilighted) refer to “tax for accounting purpose” or “tax for tax purpose”?

  2. The table doesn’t specify if the “deferred” is an asset or liability, shall I assume the positive numbers are assets, and the negative numbers are libilities?

  3. Are the numbers under “total” the “income tax expense for accounting purpose”?

  4. Question 14 is regarding computing effective tax rate on foreign income. Why year 3’s effective tax rate on foreign income is (28,140 +124)/116,704? (same formula for the rest two years)

Would greatly appreciate anyone’s insight! Sorry I’m totally lost!

#2

Income tax payable (for tax purposes)

Recall the equation:

Income ~tax ~expense = Income ~tax ~payable + \Delta DTL - \Delta DTA

Using the Year 3 figure (for Federal) of -$4,752, it could be a decline in DTL or increase in DTA, or a combination of both. Can’t tell given the information given in the case.

Yes, that’s the income tax expense.

Effective ~tax ~rate ~of ~foreign ~income = \dfrac{Income ~tax ~expense ~on ~foreign ~income}{EBT ~for ~foreign ~component }

Income tax expense on foreign income (Year 3)
= Income tax payable on foreign income + Change in DTL for foreign component - Change in DTA for foreign component
= $28,140 + $124
= $28,264

#3

Hi Abama! Thank you so much for your reply! It’s gotton much clearer now except one point:

So the umbers under “defferred” represent “Change in DTL - Change in DTA”? They are “changes for the year” instead of the accumulated sum from previous years?

Again your help is much appreciated!

#4

Yes, you’re right.

The accumulated amount of DTA and DTL is in the balance sheet. P&L reflects the changes.