Taxes

CFA Level I FRA
#1

i just started reading the taxes section…

uh…???

how much time should i spend here? whats the best way to learn this section? reading the text and explanations over and over or doing a bunch of practice problems to see how they come up with the answers?

#2

Read them and take notes. You will not learn anything, and this is normal. The way you will kinda get a grasp on taxes is with practice problems

#3

ok…kinda had a feeling that would be the case

#4

Are you talking about deferred tax assets/liabilities?

#5

yes

#6

i want to bite the end of a 45

#7

If you want to go over it with someone, send me a PM and we cna email back and forth. I actually had to pass an accounting test on DTA and DTL for my employer before the CFA. It’s really just a conceptual thing – if you try memorizing it instead of working through it, then it’ll get confusing fast. I’m not claiming I’m an expert, but I know enough to pass tests on it ha ha

#8

I like to think of DTA/DTL as: What did we show on our income statement as a PBT and what did we show on our tax returns as a PBT?

If our PBT on the tax return is more than our income statement then we have acutally paid too much tax! So we recognize this as an asset, on our balance sheet as we can net it off in future tax periods.

If our PBT on the tax return is less than our income statement then we have actually paid too little tax, and we owe the tax man a sum of money. We should recognize this a a DTL as it should be paid in future periods.

Using different depreciation methods across the income statement and tax return will reap different PBT. The question is, which has the highest PBT? Have I paid too much tax, or have I paid too little tax?