Taxes.... creating

ashycal

If taxes are changed from 35% in 2004 to 50% in 2005. Compute Tax Expense.

If 2005 Taxable Income = 5000
DTA 2004= 2000
DTL 2004 = 1000
2005 temporary differences creating DTA= 600
2005 temporary differences creating DTL= 200

Dont get it.... Help Please

RobertA

Tax on 5000 Taxable income = 5000*.5=2500

Net DTA level as at 2004 = 1000
(This had been calculated at 35% tax).
So now you need to re-evaluate this at 50% tax
so tax adjustment = 1000 - 1000 / 0.35 * .5 = -428.57

Temporary Difference (total) in 2005 = 400 (which is a DTA)
Tax on DTA = 400 * .5 = 200

So total tax = Tax Expense - Change in DTA +Change in DTL= 2500 - (-428.57) - 200 = 2728.57
Since the total tax was calculated based on a DTA - DTL change = 0.

(I am not completely sure if I remember all this correctly, so pardon me if I am wrong).

CP

JPSem

Thank You thats the right answer now I see it better....


why did you subtract 1000 from the DTL - DTA in year 2004..... 1000- 1000/.35 *.5



Edited 1 time(s). Last edit at Saturday, November 27, 2010 at 02:28PM by JCM.