Effect of Tax Rate Change on DTL

vandhana.gopalakrishnan
Posts: 5
Joined: Tue Jul 17, 2012 12:31 pm

Effect of Tax Rate Change on DTL

Postby vandhana.gopalakrishnan » Sun Nov 11, 2012 5:35 pm

I am unable to follow the tax rate change example in the curriculum.

Carrying value for 2006,2005 and 2004 are 14,000 ; 16,000 ; 18,000 respectively.

Tax base for 2006,2005, and 2004 are 11,429 ; 14,286 ; 17,143 respectively

Differece amounts 2571 ; 1714 ; 857 respectively

The DTL for the 3 years are 771 ; 514 , 257 (Assuming Tax rate to be 30%)

Now letz say tax rate for the year 2006 changes to 25%. The new DTA is (25% x 2571) = 643

The book says 771 to 643 is reduction of 128 and this caused by diffrence in

1) dereciation method 2) tax rate change

The benifit of accelerated depreciation is now only (857 x 25%) = 214 (not 257). There is a reduction of 43.

The “beginning carrying value of the deferred tax liability” furhter reduces income tax expense in 2006.

(NO IDEA WHAT THE ABOVE STATEMENT MEANS)

The reduction in income tax expense attributable to tax rate change si (5% x 1714) = 85

S0 43 + 85 = 128

Could you please shed some light on how DTA carried forward ?

Thank You

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girimpr
Posts: 5
Joined: Thu Nov 22, 2012 4:12 pm

Re: Effect of Tax Rate Change on DTL

Postby girimpr » Sun Nov 25, 2012 2:02 am

Hi,

Income Taxes Expense = Taxes Payable + Change in DTL - Change in DTA
Net Effect wld be nill= dec T, rate + Dec by 128 - Nill

The “beginning carrying value of the deferred tax liability” further reduces income tax expense in 2006.


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