DTL/DTA: Accelerated Depreciation
In any case that you have Deferred Tax Liabilities and Assets come up, do you show what you actually pay in taxes on the Income Statement or what accrual would have you pay:
Ex: Example Co buys $400 in PP&E and depreciates it over 4 years. But they use accelerated depreciation to depreciate it 50% the first year:
Which of these is the correct IS
Case 1: IS reflects the Accelerated (tax-based)
End of Y1 IS:
EBITDA: $500
-D&A: 200
Pretax: 300
Net Profit: $240
CF:
NI: +240
D&A: +200
DTL: + 40
Cash up 480
BS:
Cash: up $480
PP&E: Down 200
DTL: up 40
SHE: up 240
Case 2: IS reflects the straight-line depreciation (accrual-based)
End of Y1 IS:
EBITDA: $500
-D&A: 100
Pretax: 400
Net Profit: $320
CF:
NI: +320
D&A: +200
DTL: + 40
Cash up 560
BS:
Cash: up $560
PP&E: Down 200
DTL: up 40
SHE: up 320
Can't edit, but CF from case 2 should be adding 100 of D&A
How would the BS balance for case 2 then?
How did you get a DTL of 40?
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