CFAI curriculum Vol 3, P.454
The last sentence stated : On the income statement, the company’s income tax expense will be the sum of the DTL and income tax payable.
However, I remember that it is stated in Schweser’s study note that : Income tax expense = Income Tax payable + Change in DTL - Change in DTA
Which shall correct ? I am very much confused ! Anyone can help ? Thanks in advance !
The second formula is correct. The first is just assuming that there are no DTAs.
If the 2nd formula is correct, then the 1st one shall be : Income tax expense = Income tax payable + Change in DTL, right ? unless the acuunulated DTL is zero in the pervious year. Am I right ?
If you set up T-accounts, you’ll see why the formula is:
Income tax expense = Income Tax payable + Change in DTL – Change in DTA:
Income taxes payable has a credit balance, and income tax expense has a debit balance: if the credit goes up, the debit has to go up, so you add income taxes payable to get income tax expense.
DTL has a credit balance: if the credit goes up, the debit has to go up, so you add the change in DTL to get income tax expense.
DTA has a debit balance: if the debit goes up, another debit has to go down, so you subtract the change in DTA to get income tax expense.
S2000magician,]
Thank you so much !
My pleasure.