DTA/DTL Technical Question 3 Statements
Ignore title. Prepping the following question and want to make sure I am thinking through it right:
"Tax depreciation is $20 million over 10 years, while financial statement depreciation for the asset is $10 million over 10 years. Walk me through the impact of these differences on the financial statements, assuming a tax rate of 50%"
My sample answer:
DTA is created since cash taxes > book taxes. IS down 10 pre-tax for book depreciation, NI down 5 due to taxes.
CFS has NI down 5, add back 10 in book depreciation since non-cash, subtract 10 in DTA created (not sure here but numbers tie in end), cash down 5.
BS has cash down 5, DTA up 10, PP&E down 10, RE down 5 so both balance to minus 5.
Did I think about this right?
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