If a company moves from Straight line to accelerated depreciation (and assume for tax accounting purposes, accelerated depreciation is required) what is the most likely effect on Income tax payable, Deferred Tax Liability and Effective Tax Rate? A. Lower, Higher, No change B. Lower, Lower, No change C. No change, Lower, Lower D. No change, Lower, No change
should be d? based on assumptions that accelerated was already used for tax purposes, so tax payable will not change, and effective tax rate would not change cos dep method is a temporary diff, and dtl will be lower, so it’s d.
Agree with D…
Income tax expense (Fin Repo) now-on becomes equal to Tax Payable (Tax Repo) = no change Effective Rate = never changes for temp differences DTL starts reversing (since you pay accelerated taxes now) is it D? - Dinesh S
You are both correct. I however chose C. I think the first two are straight forward. Being in a rush I picked C, assuming that there must be an impact on effective tax rate. -of course you are right that there would be no effect.