DTL question liability, question, purposes, income

prav_Cfa7

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.