Deferred tax assets and liabilities and their tax base… HELP

Yeah, this was the reading where I asked Regis for the “Ask an accountant” phone call. Only one that stumped me.

I just read through this section for the first time, and this was the first reading I wrote “this section didn’t click” on page 1.

I get the DTA and the DTL. Everything else didn’t get through.

I’m going to finish (mercifully) my last FRA reading, and then I’m going to go back and hopefully button this up. Maybe on the 2nd go it will get through my noggin.

Obviously it’s not advised, but if you score 80% on 80% of the material (then take a guess at the rest) you should be on track to pass…. Which means ideally there are less than 24 questions per 120 question set that you’re unsure of. Pick your battles, win the war.

Given the way CFAI questions are worded, I reckon it’s better to know most of the topics (but not all) back-to-front that to have a good (but not excellent) knowledge of everything. (i.e., 100% confidence on one question + guess (1/3) on another = av. 65%, versus 50% confidence on two questions = av. 50%)

I recently finished reading Quality of Earnings and the point made about differences between tax income and annual report income stuck with me. I’m not clear though on how this is disclosed. For example, in the below table (Corning inc 2003), I understand that there is a deferred tax asset.Then my friend who worked in Chicago IRS Lawyer office tall me all about income tax and annual report income stuck.

The tax base is the value you work off in calculating what you owe the relevant tax authority, while the carrying value is what you list the value according to your own in-house methodology. If there is a difference between these values a Deferred Tax Asset or Deferred Tax Liability is created.

A pretty basic way of remembering whether a DTA or DTL is created is to look at whether the carrying value is LESS than the tax value. In this case, if we are talking about a liability, a DTL will be created. If we are talking about an asset, a DTA will be created.

The other way of thinking about it is through logic, as you reasoned in your question.

On that point, your second example seems to be incorrect (though I might just be reading it wrong). If you paid less tax than you needed to (and so presumably have to pay the difference at some stage) a DTL will be created.