AuthorTopic: Queries about deferred tax
Saleem65
@2014-09-10 14:30:02
Hi guys. I have 2 questions regarding deferred tax.

1. To calculate the cumulative deferred tax asset or liability, we take the difference between the carrying amount and the tax base and then multiply by the tax rate. But how do you know if its Carrying amount - Tax base or Tax base - Carrying amount?

2. The next question is about the example on deferred tax assets in the notes, reading #31. In the second paragraph, it is stated that at the end of year 1, the carrying value of the warranty liability is $100. And the tax base of the liability is 0. How did they arrive at 0?

From what I read, tax liability is the carrying amount of the liability - any amounts that will be deductible on the tax return in the future.

So, why is my understanding (below) wrong?
At the end of year 1, the carrying amt of the liability = $100
Amount that will be deductible in the future = $200 since the warranty work is only performed in year 2.

Thanks a lot for your help!!!!

CFA Discussion Topic: Queries about deferred tax

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