For a permanent difference between taxable income and pretax income, the effective tax rate for tax expenses should be adjusted. what does this mean? the firm has adeferred tax liability and the capital expenditures will decline, the PV should be treated as a liability with the remainder being treated as equity what does this mean? Thanks.
If there is a permanent difference the rate that you are actually paying as a % of your taxable inceme will not the required rate of say 35%. Effective tax calculate the rate that you are actually paying. permance difference usually result in higher or lower effective tax which is different from the stipulated rate. Deffered tax liabilities are expected to revise in future with reduced capital expenditure since there the level of depreciation will be low so taxes will be higher than early years. The part that you are treating a libility is what is expected to revise with the current low level of assets but the portion that you are treating equity is a libility that you has accrued but you have realised that will not have to pay.
You explain better than the notes, thanks.