Indirect methods, deferrred tax liabilities

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pierrreg

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Hello,
Why is it necessary to take into account the deferred tax liabilities in the indirect methods to determine cash flow, since deferred tax liabilities are long-term liabilities and we only care about the changes in operating working capital account in the indirect methods?
thank you.
 
Because by using IM, you start with NI and makes adjustments for all items which impact CF to get CFO, non cash and cash based records as well. You are not correct with assumption that DTL (or DTA) is only long term item and thus cannot impact CF. It does. Once DT position has been established in one reporting period, in each further reporting period, aliquot part of the previously identified long-term position is settled to the current tax liability and thus has an impact to the current CF.
 
You are not correct with assumption that DTL (or DTA) is only long term item and thus cannot impact CF.
>>So DTL can be both long term and short term liabilities
Once DT position has been established in one reporting period, in each further reporting period, aliquot part of the previously identified long-term position is settled to the current tax liability and thus has an impact to the current CF
>>ok, but you say that “in each further reporting period”, which means that we are not in the current period, so, at a point in time, the DTL in the balance sheet concerns futures periods, not the current one. Right?
 
DTL/DTA position is a temporary difference in after tax earnings between tax accounting (CIT Return) and financial accounting (P/L), thus those determined DT positions have indirect impact on current cash inflows/outflows through current tax adjustments.
 
Ok I see: I dont understand the difference between taxe payable and derrered taxe payable.
 
Pierrreg
Just remember. When you use IM only, you started with NI and make or non cash and cash flow based adjustments to get CFO. Changes in DT position is one of those adjustments.
 
Tax payable is current period tax payable (in many Europen legislative usually should be settled within few months periods by submitting FS to Authority).
DTL (deferred tax payable) is the tax payable which is supposed to be partially settled in further periods.
 
Ok thk flashback.
One thing: if you can take a look at the Schweser, level 1, Financial Reporting, los 27.f, there is an example with a balance sheet.
They give a account “Taxes payable” and an account “Deferred taxes liability” in non current liabitiies:
(cf here: www.lygeros.org/Pierre/d.jpg)
 
That’ s correct. DTL has been increased (supposed that CY is on the left) due to temporary differences (probably in asset value) in tax accounting compared to financial accounting. One example of such event is a PPE revaluation in IFRS.
 
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