Direct Charge to Surplus: Changes in deferred income tax

Is Deferred Income tax the same as Deferred Tax Asset(or Liability)?


  • edited April 2019

    No, it isn't the same thing. They are both deferrals of income tax but for different reasons:

    • the plain old "deferred income tax" is a liability that occurs because of differences in income recognition between tax laws and company accounting methods
    • DTA or DTL can arise because of differences in tax accounting & statutory accounting for loss reserves (and other things as well - see wiki)

    So in both cases the the deferrals arise because of differences in the way certain balance sheet or income statement items are treated, but again, the specific reasons for each are different.

    (P.S. DTA is the largest component of deferred income tax.)

  • Okay, thank you so much for the clarification!

  • This concept is confusing to me as well. I think in one year, they gave us Deferred Income Tax (DIT) and Net Unrealized Capital Gain less capital tax. In the examiner report, if I interpret correctly, they explain that the capital tax of unrealized capital gain is already included in DIT

  • Do you remember where you saw this?

  • It is Fall 2017Q10. In this question, they gave us Net Unrealized Capital Gains less Capital Gains Tax and Net Deferred Income Tax.

  • I reviewed the answer in the examiner's report and here are my comments (given that it's just 1 day before the exam.)

    • The lengthy explanation in the examiner's reports indicates that this was a very difficult problem to get completely correct.
    • The knowledge required to solve it was not always explicitly available in the source text (Odomirok).
    • Several different assumptions/interpretations were accepted to account for the lack of clarity in the question and in the source reading.

    I think the best strategy is to pick 1 of the 3 solutions and learn that calculation very well. I picked sample answer 1 for the practice template. Once you can do that calculation, you can read the examiner's report more carefully to understand the other interpretations, and that's valuable if you have the time.

    I think you can learn a lot by studying this question but be careful not to spend too much time here - it may take too much time away from other important items on the syllabus. This is especially true right before the exam. It's best to spend this last day doing an easy review of what you've already learned over these last few months. You can't realistically learn new material at this point. Just get a good night's sleep so you're well rested for tomorrow.

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