Thanks for the note. If I understand correctly you are saying that for a DTL to be recognized as a liability (and therefore be deemed temporary), it does not matter if the firm is profitable. It only matters that if in the forseeable future, the cost basis of net PPE would be lower than the tax basis. Since, in the above example, the firm will continue to purchase PPE (perpetually increasing tax depreciation while reporting depreciation remains the same) the tax basis will continue to be lower than the cost basis in the future (or atleast until the firm stops with the capital expenditures).
That may have been a bit wordy...let me know if I should rephrase. Thanks for the help! |