Income taxes can be based on taxes payable +/- changes in DTA/DTL. There is a second definition based on taxes payable + deferred income taxes that does not match the first formula as deferred income taxes = DTL - DTA.
Could anyone clarify?
Income tax liability = current income tax liability + portion of deferred income tax liability. If an entity has both positions recorded, DTA and DTL in BS, than a portion of net DTL should be settled by year end (in case of DTL > DTA). Otherwise, an entity may use an income tax credit to decrease a current CIT liability (in case of DTL < DTA).
Thanks - What about the calculation of income taxes? Taxes payable is one composite, but what about the second one (change in DT vs deferred income taxes)?
Don’t understand the question. Could you clarify?
If you utilize DTA matching is a current CIT account payable deduction or a current tax receivable account increase (in case you have a surplus).
If you recognize a portion of DTL as a current tax payable account increase, you simply debit (decrease) a DTL account. Thus further period DTL would be in lower amount assuming all else equal.
Is that what you are asking?
Thanks - I have applied the following 2 formulas (from Schweser Notes) to derive the income taxes.
1 - based on taxes payable +/- changes in DTA/DTL.
2 - There is a second definition based on taxes payable + deferred income taxes that does not match the first formula as deferred income taxes = DTL - DTA.
Both formulas yield different results, so which one is the right one?
DTL- DTA is a net change in DTL and this is related to deferred income tax liability. When a current tax liability is being added you have the same result. Thus formulas under point 1 & 2 are the same thing.