FRA - taxes....anyone confused by this

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jdoug1234

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Is anyone confused by the FRA taxes topic. I have been reviewing it a few times this week but still can not understand it fully. Will likely skip it and focus elsewhere. Is it confusing to most people or what has helped you guys understand it?
 
Deferred taxes I assume you mean. I think this will be worth 3-4 marks over the 240 questions so it’s good to have some knowledge of it.
DTA / DTL are created by temp differences between FRs and Tax Returns. Temporary differences only.
DTA if tax return taxes are greater than FR numbers (income tax expense) - i.e you’ve paid more to taxman than reported in IS so will claw it back in future
DTL if tax return taxes are less than FR numbers (income tax expense) - i.e you’ve paid less to taxman than reported in IS so will need to pay in future
Valuation allowance required under GAAP if DTA not expected to reverse.
Usually should come up with a depreciation style Q for different dep. methods. Other versions e.g. warranty expense are trickier.
 
Are you talking about DTA/DTL? Basically you just need to calculate the carrying value and the tax base seperately. Compare those 2 numbers, take the difference and times it by the tax rate. If Tax Base > Carrying value = DTA. Tax Base < Carrying Value = DTL. Basically, you will be paying the same amount in taxes, its just a matter of when you pay them. DTA/DTL smooth the tax expense as opposed to having a huge tax hit now or in the future.
 
Income tax expense = Taxes payable + ChangeDTL - Change DTA
Good formula to remember
 
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