Deferred Tax Equation(Income Tax Expense equation)

CFA Level I
#1

Hi All, What is the equation of Income Tax Expense? As per schweser (Page-196) Income tax expense = taxes payable + DTL - DTA As per CFA book (Page-418,Question 3) Income tax expense = taxes payable + DTA - DTL Please reply ASAP…

#2

IIRC: Income tax expense (recorded on the income statment) is made up of two components, income tax payable, and deferred tax. An increase in deferred tax liabilities would mean less tax now at the expense of more tax later, which would decrease your taxes payable. Therefore, Income tax expense = taxes payable + DTL - DTA. Hopefully someone can confirm this.

#3

Your correct, I/T Exp = TP + (change in deferrals) remember the change is netted

#4

I think instead of memorizing the equations, understanding what the journal entries look like will make it a whole lot easier to remember.

#5

The correct equation should be: Income tax expense = tax payable + (net change) DTL - (net change) DTA If DTL increases during the financial period, net income in FS is more than in tax purpose so DTL is added with tax payable (based on tax purpose) to truely reflect the total amount of tax expense in the income statement. If DTL decreases, then we should minus it. The same logic applies for DTA but vice versa, we deduct the increase in DTA and add the decrease in DTA. So in the account of DTA or DTL, we must calculate the difference between the ending balance and the beginning balance.