Income taxes based on changes in DTA/DTL or deferred income tax

CFA General
#1

Hey

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?

Thanks

#2

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).

#3

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)?

#4

Don’t understand the question. Could you clarify?

#5

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?

#6

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?

#7

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.