farrukhsadiq

Hi Soddy, I agree with your comment "However you do treat Deferred tax liabilities as equity if you do not expect them to reverse, so theoretically you could include it. "

To elaborate my understanding on this: DTL is liability in your accounting books, when you have showed more Tax Expense in your Accounting Books than what you have actually paid to Govt in your Tax Books. (e.g. Straight Line Depreciation in Accounting books and Double Depreciation in Tax Books). Eventually, you expect to pay this difference to govt in subsequent years and hence take this as a liability in your books.

But, lets say, due to some changed circumstances, you manage to avoid paying that diff to govt in subsequent years (that is, it is no more likely to reverse), then this liability is written off and your equity will increase. A = L + E; L down, E up, other things assumed same.

Is this what you were looking for?



Edited 1 time(s). Last edit at Thursday, August 6, 2009 at 06:52AM by rus1bus.