Deferred Tax - DTA DTL liability, only, difference, regarding, valuation

Elliotbay

Just read on Elan notes that a DTL usually arises when an asset's tax base is lower than its carrying value.
But at the same time, the treatment of temporary difference says that when an asset tax base is greater that its carrying value, it reseults in a DTA.

Si I'm confused. What is the difference between the 2 ?

When do we have a DTL or a DTA from a liability or an asset exactly ?


Also, regarding the valuation allowance, is it applicable for both IFRS and USGaap or only USGaap ? Thanks

LokiDog2

tax base lower than carrying value on financial statements= I pay less in taxes= will have to pay future taxes = DTL

Tax base higher than carrying value on financial statements= i pay too much in taxes= prepaid tax= DTA

The differences arise b/c of differences in the way you report your 1) financial statements vs. 2) tax books. Keep the 2 sets of books separate in your mind.

I think valuation allowance is for both but i could be wrong.

dotamasta

Miss*Yiota Wrote:
-------------------------------------------------------
> Just read on Elan notes that a DTL usually arises
> when an asset's tax base is lower than its
> carrying value.
> But at the same time, the treatment of temporary
> difference says that when an asset tax base is
> greater that its carrying value, it reseults in a
> DTA.
>
> Si I'm confused. What is the difference between
> the 2 ?
>
> When do we have a DTL or a DTA from a liability or
> an asset exactly ?
>
>
> Also, regarding the valuation allowance, is it
> applicable for both IFRS and USGaap or only USGaap
> ? Thanks


Let me tell you the way I like to remember it to save time:

I say-

Asset CA > TB gives DTL (I have learnt this) .......(I)
Now if I change one thing, DTL changes to DTA. If I change both, DTL stays put. Let me show:

Asset CA < TB gives DTA (Inequality sign flips. Single change)
Liability CA > TB gives DTA (Asset in (I) changes to Liability. Single change)
Liability CA < TB gives DTL (Asset in (I) changes to Liability and sign flips. 2 changes)

ishfaque

Sgupta, it's not a specific question, just through my reading again and notice that these DTL / DTA are confusing

regarding valuation allowance, are you sure that's an IFRS stuffs ? I checked again and looks like it's more USGaap. But haven't found out if the same treatment of uncertain DTA is valid under IFRS...

kasinkei

That's right..It's very confusing..

Well you are right..I checked it again it's more of a US GAAP thing. Nowhere it is mentioned that how it needs to be treated under IFRS.

FVPV

so let's just assume there is no valuation allowance under IFRS. Any CFA guy or accountant here to confirm please ?

soddy1979

Miss*Yiota Wrote:
-------------------------------------------------------
> so let's just assume there is no valuation
> allowance under IFRS. Any CFA guy or accountant
> here to confirm please ?


One question, does the valuation allowance change when tax rates change? DTAs reduce when tax rates reduce, right? What about valuation allowance?

ramdabom

yeah I haven't seen questions on tax rate implication on valuation allowance. Very interesting point Anish..Ideally it should change as that's a contra account and should have the same effect otherwise it will be either overstated or understated depending upon the tax rate change.

homie

I think if the tax rate is reduced, that means the probability to benefit from our DTA is getting low. So the valuation allowance should increase.

I just saw a question where it was asked what will be the impact of an extension of the carrying forward period on the valuation allowance

pogo

Miss*Yiota Wrote:
-------------------------------------------------------
> I think if the tax rate is reduced, that means the
> probability to benefit from our DTA is getting
> low. So the valuation allowance should increase.
>
> I just saw a question where it was asked what will
> be the impact of an extension of the carrying
> forward period on the valuation allowance

Can you post the question miss?