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prav_Cfa7

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tT
发表于 2011-7-13 16:38 | 只看该作者

DTL question

liability, question, purposes, income
2004 year end:
Accounting purposes income: $1900
Tax purposes income: $1600

2005 year end:
Accounting purposes income: $1800
Tax purposes income: $1280

If the tax rate was 30% in 2004 and then in 2005 it was changed 25%, "The deferred tax liability as at 31 December 2005 is _____"

WHAT I DID:
OK since you must restate DTL's and DTA's when the tax rate changes, DTL from 2004 would be 300*0.25 = $75. DTL in 2005 year end would be 520*0.25 = $130.

So wouldn't the DTL as at 31 December 2005 be $205?? ($130 + 75).

The answer to this question was simply $130 (the DTL from 2010 alone). Was I just completely wrong to think that you must add 2004's DTL to 2005's? If so, what happens to the DTL from 2004?

Hope thats clear enough...thanks for the help.



Edited 1 time(s). Last edit at Thursday, June 2, 2011 at 04:25AM by mnieman.
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hariRaj

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2#
发表于 2011-7-13 16:38 | 只看该作者
Isn't there explanation of this answer in the source you get it from? I think you're right, DTL is balance sheet account and it should reflect liability arising from tax and accounting differences of all periods, not only of current period.



Edited 1 time(s). Last edit at Thursday, June 2, 2011 at 05:02AM by optiix.

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dece2011

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3#
发表于 2011-7-13 16:38 | 只看该作者
I don't want to copy paste due to copyrights and stuff but essentially the answer states that:

DTL = (tax rate) * (difference between value for accounting and value for taxes), so we get: 0.25*(1800-1280)=130.

Thats all it says. It doesn't even mention the previous year. The question word for word is "The deferred tax liability as at 31 December 2005 is _____" . I don't understand what the clue is for us to know that we are only supposed to calculate the change in DTL from that year ... especially considering one of the "wrong" answers given was the DTL from 2004 + 2005's DTL.

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leadcfa

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4#
发表于 2011-7-13 16:38 | 只看该作者
When I saw this question, one thing hit me: The difference between 2005 year end incomes is more than 2004 year end incomes. My thought was: do they mean that the gap has increased in 2005 to $520 (from 300 a year before).. the way you say the difference in the CA and TB increases each year and hence we can use just the last year's difference to get total DTL. I think that is what they had in mind though using 'accounting purpose income' and 'tax purpose income' is certainly misleading since it seems that we have picked these values from the income statement and tax returns of the 2 years. My answer would also be 205 here but that is the explanation I could think of for their answer.

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Londonrocks

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5#
发表于 2011-7-13 16:38 | 只看该作者
alright well this was taken from a CFAI mock so lets just hope the actual test is a bit more clear.

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