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Isn’t there explanation of this answer in the source you get it from? I think you’re right, DTL is balance sheet account and it should reflect liability arising from tax and accounting differences of all periods, not only of current period.
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Strange. 130 is the change in DTL during 2005, not DTL as of 2005 dec 31.
I’m confused. So do we need to adjust the DTL for the year of 2004 from 90 to 75, or it just applies to DTL of the year 2005?
You are definitely correct that 2004 DTL needs to be accounted if you are calculating DTL as of 2005 but you are assuming that as of DTL 2003 is 0. Is that a fair assumption?
When I saw this question, one thing hit me: The difference between 2005 year end incomes is more than 2004 year end incomes. My thought was: do they mean that the gap has increased in 2005 to $520 (from 300 a year before)… the way you say the difference in the CA and TB increases each year and hence we can use just the last year’s difference to get total DTL. I think that is what they had in mind though using ‘accounting purpose income’ and ‘tax purpose income’ is certainly misleading since it seems that we have picked these values from the income statement and tax returns of the 2 years. My answer would also be 205 here but that is the explanation I could think of for their answer.
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