deferred tax liability and tax reversal

CFA Level II
#1

how dose that exactly work? the deffered tax liability will be charged in later years ? thanks.

#2

You have something that you could deduct for tax purposes, but not for book purposes. The most common one is accelarated depreciation for tax and SL depreciation for books. This will eventually turn around. In later year SL depreciation will be higher than accelerated (DDB) so it will reverse at that time.

#3

A simple 2 year shift: Year 1: Debit: Income tax Expense 100 Credit: Income taxes payable 80 Credit : Deferred taxes 20 Year 2: Debit: Income tax Expense 100 Debit: Deferred taxes 20 Credit: Income taxes payable 120

#4

so if a company have deferred tax liability, the tax will be paid eventually in later years? that is why they call reversal? thanks. Super I Wrote: ------------------------------------------------------- > A simple 2 year shift: > > Year 1: > > Debit: Income tax Expense 100 > Credit: Income taxes payable 80 > Credit : Deferred taxes 20 > > Year 2: > > Debit: Income tax Expense 100 > Debit: Deferred taxes 20 > Credit: Income taxes payable 120