So I think that I have a pretty solid understanding of deferred tax liabilities so far... From what I understand, any writeup of PPE/Intangible assets will cause the pretax net income to be lower and thus cause a lower book tax than what the company actually has to pay in cash taxes (for a stock deal).
I began to think about this a little further and became confused though.
- We come up with the value of the deferred tax liability by taking the total amount of the writeups and multiplying it by the tax rate.
-The DTL decreases each year because we are paying more cash taxes than what we record for book taxes on our income statement.
-I am confused because the DTL goes down each year on our balance sheet because of the higher cash taxes that we are paying but I don't see the DTL showing up on the CFS for any of the models that I've looked at. My logic would be that the year over year decrease in DTL balance should also be shown on the CFS as our cash is reduced by the difference between the book and cash taxes we are actually paying. Although I couldn't find anyone on here or elsewhere discussing a line for the reduction of DTL on the Cash Flow Statement so maybe I am thinking about this incorrectly?
If someone could provide some insight on this I'd really appreciate it.