Does anyone came across any simpler explanation somewhere on the Internet other than this? http://minute-class.com/finance/deferred-tax-liability-effect-of-tax-rate-change/ I spent too much time on #37!
Same here. Its a royal pain!
Do we ever report cumulative DTA/DTL on bs or just report the DTA/DTL for that year?
I believe cumulative DTL/DTA are stated on the balance sheet. The change in DTL/DTA over the year is used to calculate income tax expense for the income statement. Its not a perfect example, but accumulated depreciation is a BS item, while depreciation expense for the year (which usually equals change in accumulated depreciation over the year) is an income statement item.
revenant Wrote: ------------------------------------------------------- > Does anyone came across any simpler explanation > somewhere on the Internet other than this? > > http://minute-class.com/finance/deferred-tax-liabi > lity-effect-of-tax-rate-change/ > > I spent too much time on #37! I cannot access this site due to some firewall restrictions in my connection. But I am assuming you have a question on how Tax Rate change will affect DTL. Take it this way. There are some taxes in you Accounting Books which you were able to Legally postpone paying in future periods. That is, in your Accounting Books, say your Tax Expense is $100. And in your Tax Books, you were legally able to calculate and pay only $80. So, the rest of $20, you will report in your Accounting Books as DTL and you will pay that to govt. in subsequent periods at THEN prevailing rate of taxes (or rather at your then prevailing marginal tax rate). Now, it is simple. If you future tax rate / marginal tax rate increases, you will have to pay more. Or your DTL (liability) will increase by that much. And if your tax rate / marginal tax rate decreases in future, you will have to pay less, or your DTL will decrease by that much. Hope it helps.
Hi rus1bus Yes I understand about that part. I’m not proficient enough to be able to calculate the change in the tax being paid. Do we calculate the change in the year the rate is changed? How about the subsequent years? Thanks.
Hi revenant, I dont think I understand your question, but I will try to present a complete picture, so it includes answer to your question. As an ACCOUNTANT reporting his B/S, you will need to report the following figures as of end of that period. 1) Taxes Payable 2) Tax Expense 3) DTL balance 4) DTA balance Now, how do you get these? 1) Taxes Payable from your Tax Books. The amount that you actually paid in taxes for that period. 2) Tax Expense from your Income Statement. That is, taxes reported there on your EBT figure. 3) DTL balance from the formula DTL = (Carrying value of asset - Tax base)* Tax rate where Tax Rate is tax rate for that period. 4) And DTA balance from the formula DTA = (Carrying value of liability – Tax base of liability) * Tax rate where Tax Rate again is the tax rate for that period. Now, as an ANALYST, you may need to incorporate the effect of any changed tax rate for the future period you are forecasting figures for. This is required so that you can re-assess values of Liabilities and Assets before calculating your estimated financial ratios. To do that, again use same formulas: DTL = (Carrying value of asset - Tax base)* Tax rate DTA = (Carrying value of liability – Tax base of liability) * Tax rate Only this time, Tax Rate is the estimated changed rate for the period you are estimating these figures. And as you can see from the formula, if future tax rates increase, so will DTL and DTA; and if future tax rate decreases, so will DTL and DTA. I dont think you need to know more than this on LOS 37d.